ASSESSING THE IMPACT OF PUBLIC SPENDING ON AGRICULTURAL PRODUCTIVITY GROWTH IN PAKISTAN: A GROWTH ACCOUNTING PERSPECTIVE

Abstract

Pakistan is fundamentally an agrarian country; however, its agricultural sector faces numerous challenges. The government of Pakistan allocates substantial financial resources across various economic sectors, including agriculture. The present investigation has assessed the influence of public expenditure on the growth of total factor productivity (TFP) within the agricultural sector of Pakistan. In the initial phase, adjusted TFP growth is quantified utilizing the Growth Accounting Approach, drawing upon data from 1984 to 2022. In the subsequent phase, the effect of public spending on TFP growth is analyzed from 1984 to 2022. All variables have been identified as integrated in order one. Consequently, the Johansen Cointegration Approach is employed to ascertain the cointegrating vectors. The outcomes derived from the Vector Error Correction model indicate that public expenditure on agriculture, as well as on education and health, has a positive and significant impact on TFP growth. Conversely, the credit extended to the agricultural sector has negatively affected TFP growth. Additionally, inflation has exhibited a negative and significant relationship with TFP growth. The study advocates for increasing financial allocations towards agriculture, education, and health, along with evaluating the credit policy of the agricultural sector.