Total Factor Productivity Growth and Agricultural Research and Extension: An Analysis of Pakistan's Agriculture, 1960-1996

Pakistan’s agriculture has grown rapidly since the 1960s, with an average annual growth of about 4 percent over the four decades till the end of the century. Agricultural growth at this rate was sustained by the technological progress embodied in the high-yielding varieties of grains and cotton, with supporting public investment in irrigation, agricultural research and extension (R&E), and physical infrastructure. This rate of agricultural growth has significantly contributed to the overall economic growth of about 6 percent per year during this period. Sustaining this performance presents a considerable challenge for the public policy framework for agriculture, not the least for the agricultural research and extension system in Pakistan. This study analyses the impact of R&E investment on TFP growth in Pakistan’s agriculture within a distributed lag framework. The estimation of the productivity-R&E relationship with an Almon lag provided evidence of a strong relationship, explaining 96 percent of the variation in the TFP index. The marginal internal rate of return on R&E investment is estimated at 88 percent. This rate of return may look unusually high but it is well within the range of returns estimated in the context of developing and developed countries. The high rate of return is an indicator not only of under-investment in R&E but also of the constraints on research and extension services that prevent optimal performance