Agricultural Export and Economic growth: Evidence from Pakistan

Abstract

Among the main economic growth determinants, trade is the prominent factor which has been widely discussed in recent growth literature. The crux of the debate has been whether the countries that keep their economies open to foreign trade can grow faster. There is extensive literature available which is aimed to explore the association between international trade and growth by testing the hypotheses of either trade-led, import-led or export-led growth. However, empirical results regarding these hypotheses in the growth literature are mixed. The primary focus of the study is to analyze the hypothesis of export-led growth for Pakistan economy. Autoregressive Distributed Lag (ARDL) model approach is used in this study to explore the hypothesis using 48 years time series data from 1972-2019. Initially, data on exports at aggregate level was used and the results confirmed export-led growth hypothesis for Pakistan. The causality between GDP and aggregate exports was also conducted and the study found two-way causality between the two variables. Later on, exports were decomposed into agricultural goods and non-agricultural goods exports. The results revealed that export of agricultural commodities has positive impact (0.02) on output level albeit statistically insignificant. On the contrary, coefficient of exports of non agricultural goods was positive (0.05) and highly significant. These results confirmed export-led growth hypothesis for non-agricultural goods. We also explore the causal relationship between agricultural exports and agricultural GDP. The study finds a uni-directional causal relationship between the two variables running from agricultural exports to agricultural GDP. The policy implication of the study is that in order to enhance the growth process of the country, Pakistan should divert its resources towards exports sector particularly more towards non-agricultural sector. Agricultural goods exports also have positive impact on GDP of Pakistan, however, there is dire need to export value added agricultural commodities rather than exporting goods in its raw forms. The study recommends that in order to boost agricultural GDP, exports from agricultural sector may be further enhanced. This study suggests further decomposition of agricultural and non agricultural goods to analyze their role in agricultural GDP and total GDP growth respectively in future studies.