MACRO DETERMINANTS OF TOTAL FACTOR PRODUCTIVITY GROWTH OF AGRICULTURE IN PAKISTAN

Abstract

The present study estimated Total Factor Productivity (TFP) growth of Pakistan’s agriculture, using Tornqvist- Theil index number approach for the period 1971-2006. Most of the conventional inputs used in the production process in Pakistan’s agriculture were included in the analysis of TFP estimation. Output and input quantity data of crop and livestock sub-sectors along with their prices were utilized in constructing output quantity index and input quantity index, respectively. The data on poultry meat, wheat straw and concentrates were used for the first time in TFP estimation of agriculture. The time series data for twenty nine crops and four livestock categories from 1971 to 2006 were collected from different publications/official sources. The average annual TFP growth of agriculture was estimated to be 2.14 percent for the study period and it contributed about 56 percent to total agricultural output growth. The results also indicated that TFP growth in agriculture sector was highest (2.86 percent) during the last six years of the study period while lowest (0.96 percent) during the decade of 70s. The decades of 80s and 90s registered average TFP growth rate in agriculture of 2.24 and 2.46 percent, respectively. Total factor productivity growth contributed about 33, 53, 81 and 83 percent to agricultural output growth during the decades of 70s, 80s, 90s and in the last six years of the study period, respectively. The analysis of TFP growth during different time periods revealed that fluctuations in the total factor productivity growth were due to public interventions, macroeconomic policies and weather conditions. The main objective of the study was to identify the macro determinants of total factor productivity growth of agriculture in Pakistan. The data for TFP index of agriculture is not maintained in any official document in Pakistan, so the study set the first objective to estimate TFP of agriculture. Thus TFP index estimated in first stage analysis was used as dependent variable in second stage analysis. ADF- test was applied on data series of different macro variable and TFP index to check the unit root. The non-stationary variables were made stationary by differencing once. The long-run relationship between TFP index and the macro variables, integrated of I(1) was examined by the Johansen’s method. The coefficients of primary school enrolment and road length were found significant and positive in the long-run and non-significant in the short-run. The coefficient for the variable of credit disbursement to agriculture sector as percent of agricultural GDP was positive but non-significant both in the long-run and short-run. The inflation had significant negative affect on TFP of agriculture. The variable of sum of agricultural exports and imports as percent of agricultural GDP was significantly and positively associated with productivity growth. Real per capita income also showed a positive but insignificant impact on productivity growth. Over all, the results showed that policies which promote human capital, increase credit resources, improve infrastructural development, facilitate openness of agricultural economy, ensure macroeconomic stability and rise real per capita income with equitable distribution; would lead to improve total factor productivity growth in Pakistan’s agriculture.