Effect of financial development on agricultural growth in Pakistan: new extensions from bounds test to level relationships and granger causality tests

Muhammad Shahbaz, Shahbaz Shabbir () and Muhammad Sabihuddin Butt
Authors registered in the RePEc Author Service: Muhammad Shahbaz

MPRA Paper from University Library of Munich, Germany

Abstract: This study investigates the relationship between financial development and agriculture growth employing Cobb-Douglas function which incorporates financial development as an important factor of production for the period 1971-2011. The ARDL bounds testing approach to cointegration is applied to examine long run relationship between the variables. The direction of causality is detected by VACM Granger causality test and robustness of causality results is tested through innovative accounting approach (IAA). Our findings confirm that the variables are cointegrated for equilibrium long run relationship between agriculture growth, financial development, capital and labor. The results indicate that financial development has a positive effect on agricultural growth. This implies that financial development plays its significant role in stemming agricultural production and hence agricultural growth. The capital use in the agriculture sector also contributes to the agricultural growth. The Granger causality analysis reveals bidirectional causality between agricultural growth and financial development. The robustness of these results is confirmed by innovative accounting approach (IAA). This study has important policy implications for policy making authorities to stimulate agricultural growth by improving the efficiency of financial sector.

Keywords: Agriculture Growth; Financial Development; Cointegration (search for similar items in EconPapers)
JEL-codes: Q14 (search for similar items in EconPapers)
Date: 2011-10-04, Revised 2011-10-16
New Economics Papers: this item is included in nep-agr, nep-cis and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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