Endogenous growth model of a labour-abundant and land-scarce economy

The study contributes towards modelling and estimating an endogenous growth model of an economy burgeoning with young working population and declining agricultural land. The model explores the long-run impact of physical capital stock, human capital augmented labour and production index augmented agricultural land on Gross Domestic Product of Bangladesh. Theoretically and empirically the model indicates that per capita income will be rising as long as the growth and share of human capital and the growth of agricultural productivity outweigh the dragging effect of the growth of declining agricultural land and the population growth. Vector error correction model (VECM), autoregressive distributive lag (ARDL) and dynamic ordinary least square (DOLS) techniques are employed to observe the robustness of the results. The underlying production relations exhibit constant returns to scale. DOLS estimates are found more robust and significant as compared to the results in ARDL. Agricultural productivity and human capital are found as very crucial determinants of growth. Government should give more focus on creating human capital through higher spending on education and take necessary measures to increase the utilization rate of scarce agricultural land. Formulation of land zoning policy and land reclamation policy may be instrumental for effective use and protection of declining agricultural land and adverse environmental impacts.