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Effect of financial development on agricultural growth in Pakistan

Author

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  • Muhammad Shahbaz
  • Muhammad Shahbaz Shabbir
  • Muhammad Sabihuddin Butt

Abstract

Purpose - The purpose of this paper is to investigate the relationship between financial development and agriculture growth employing Cobb‐Douglas function by incorporating financial development as an important factor of production over the period 1971‐2011. Design/methodology/approach - The autoregressive distributed lag (ARDL) bounds testing approach to cointegration with structural breaks is applied to examine long run relationship between the variables. The direction of causality is detected by vector error correction method (VECM) Granger causality test and robustness of causality analysis is tested through innovative accounting approach (IAA). Findings - The empirical analysis confirmed that the series are cointegrated for long run relationship between agriculture growth, financial development, capital and labor. The results indicated that financial development has positive effect on agricultural growth. This implies that financial development plays a significant role in stemming agricultural production and hence agricultural growth. Both capital and labour in the agriculture sector also add to agricultural growth. The Granger causality analysis revealed bidirectional causality between agricultural growth and financial development. The robustness of these results is confirmed by innovative accounting approach (IAA). Practical implications - This study has important policy implications for policy‐making authorities to stimulate agricultural growth by improving the efficiency of the financial sector. Originality/value - This paper convincingly argues that there is a need for case‐by‐case study on such a project in view of each country's unique characteristics.

Suggested Citation

  • Muhammad Shahbaz & Muhammad Shahbaz Shabbir & Muhammad Sabihuddin Butt, 2013. "Effect of financial development on agricultural growth in Pakistan," International Journal of Social Economics, Emerald Group Publishing Limited, vol. 40(8), pages 707-728, June.
    • Handle: RePEc:eme:ijsepp:v:40:y:2013:i:8:p:707-728
    DOI: 10.1108/IJSE-01-2012-0002
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    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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    Cited by:

    1. Xincai Gao & Lin Ji & Abbas Ali Chandio & Amber Gul & Martinson Ankrah Twumasi & Fayyaz Ahmad, 2022. "Towards Sustainable Agriculture in China: Assessing the Robust Role of Green Public Investment," Sustainability, MDPI, vol. 14(6), pages 1-18, March.
    2. Noubissi Domguia, Edmond & Asongu, Simplice, 2022. "ICT and agriculture in Sub-Saharan Africa: effects and transmission channels," MPRA Paper 119055, University Library of Munich, Germany.
    3. Solarin, Sakiru Adebola & Shahbaz, Muhammad, 2015. "Natural gas consumption and economic growth: The role of foreign direct investment, capital formation and trade openness in Malaysia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 42(C), pages 835-845.
    4. Chandio, Abbas Ali & Jiang, Yuansheng & Ahmad, Fayyaz & Adhikari, Salina & Ain, Qurat Ul, 2021. "Assessing the impacts of climatic and technological factors on rice production: Empirical evidence from Nepal," Technology in Society, Elsevier, vol. 66(C).
    5. Shahbaz, Muhammad & Nawaz, Kishwar & Arouri, Mohamed & Teulon, Frédéric & Uddin, Gazi Salah, 2013. "On the validity of the Keynesian Absolute Income hypothesis in Pakistan: An ARDL bounds testing approach," Economic Modelling, Elsevier, vol. 35(C), pages 290-296.
    6. Abbas Ali, Chandio & Yuansheg, Jiang & Asad, Amin & Waqar, Akram & Ilhan, Ozturk & Avik, Sinha & Fayyaz, Ahmad, 2021. "Modeling the impact of climatic and non-climatic factors on cereal production: evidence from Indian agricultural sector," MPRA Paper 110065, University Library of Munich, Germany, revised 2021.
    7. repec:ipg:wpaper:2014-411 is not listed on IDEAS
    8. Abbas Ali Chandio & Fayyaz Ahmad & Ghulam Raza Sargani & Asad Amin & Martinson Ankrah Twumasi, 2022. "Analyzing the effective role of formal credit and technological development for rice cultivation," Asia-Pacific Journal of Regional Science, Springer, vol. 6(2), pages 683-711, June.
    9. Roubaud, David & Shahbaz, Muhammad, 2018. "Financial Development, Economic Growth, and Electricity Demand: A Sector Analysis of an Emerging Economy," MPRA Paper 87212, University Library of Munich, Germany, revised 06 Jun 2018.
    10. Shahbaz, Muhammad & Nawaz, Kishwer & AROURI, Mohamed El Hedi & Teulon, Frédéric, 2013. "Does The Keynesian Absolute Income Hypothesis Exist in Pakistan?," MPRA Paper 47923, University Library of Munich, Germany, revised 01 Jul 2013.
    11. Kassouri, Yacouba & Kacou, Kacou Yves Thierry, 2022. "Does the structure of credit markets affect agricultural development in West African countries?," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 588-601.

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