Advanced Search
MyIDEAS: Login

Terms of Trade and Supply Response of Indian Agriculture: Analysis in Cointegration Framework

Contents:

Author Info

  • Surajit Deb

    (Ram Lal Anand College (Evening))

Registered author(s):

    Abstract

    In this paper, we examine the presence of stochastic trend (unit root) and structural break in various agriculture-industry terms of trade series in India. The results suggest that underlying data generating process of terms of trade are most likely non-stationary. We subsequently re-examine the aggregate supply response of Indian agriculture in this light. We investigate the presence of long-run functional relationship(s) underlying the supply response model through cointegration analysis and error correction framework. The multivariate results indicate presence of a cointegrating relationship in the supply response model. The vector error correction estimates suggest that short-run output adjustments are not related to changes in agricultural terms of trade in a temporal causal relationship. However, the short-run deviations in terms of trade from its long-term level create error-correction in the long-term output adjustments through changes in technology (irrigation). This may imply that agricultural growth can respond better if price incentives are combined with investments in irrigation.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.cdedse.org/pdf/work115.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 115.

    as in new window
    Length: 43 pages
    Date of creation: Mar 2003
    Date of revision:
    Handle: RePEc:cde:cdewps:115

    Contact details of provider:
    Postal: Delhi 110 007
    Phone: (011) 27667005
    Fax: (011) 27667159
    Email:
    Web page: http://www.cdedse.org/
    More information through EDIRC

    Order Information:
    Email:
    Web: http://www.cdedse.org/

    Related research

    Keywords: domestic terms of trade; agricultural supply response; unit root; cointegration;

    Find related papers by JEL classification:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    2. Plosser, Charles I. & Schwert*, G. William, 1978. "Money, income, and sunspots: Measuring economic relationships and the effects of differencing," Journal of Monetary Economics, Elsevier, vol. 4(4), pages 637-660, November.
    3. Favero, Carlo A., 2001. "Applied Macroeconometrics," OUP Catalogue, Oxford University Press, number 9780198296850.
    4. Sapsford, David & Balasubramanyam, V. N., 1994. "The long-run behavior of the relative price of primary commodities: Statistical evidence and policy implications," World Development, Elsevier, vol. 22(11), pages 1737-1745, November.
    5. Zivot, Eric & Andrews, Donald W K, 1992. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 251-70, July.
    6. Pesaran, M Hashem, 1997. "The Role of Economic Theory in Modelling the Long Run," Economic Journal, Royal Economic Society, vol. 107(440), pages 178-91, January.
    7. Askari, Hossein & Cummings, John Thomas, 1977. "Estimating Agricultural Supply Response with the Nerlove Model: A Survey," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 257-92, June.
    8. Schiff, Maurice & Montenegro, Claudio E., 1995. "Aggregate agricultural supply response in developing countries : a survey of selected issues," Policy Research Working Paper Series 1485, The World Bank.
    9. Danny Quah, 1988. "The Relative Importance of Permanent and Transitory Components: Identification and Some Theoretical Bounds," Working papers 498, Massachusetts Institute of Technology (MIT), Department of Economics.
    10. Diebold, Francis X. & Rudebusch, Glenn D., 1989. "Long memory and persistence in aggregate output," Journal of Monetary Economics, Elsevier, vol. 24(2), pages 189-209, September.
    11. Ardeni, Pier Giorgio & Wright, Brian, 1992. "The Prebisch-Singer Hypothesis: A Reappraisal Independent of Stationarity Hypotheses," Economic Journal, Royal Economic Society, vol. 102(413), pages 803-12, July.
    12. Dickey, David A & Rossana, Robert J, 1994. "Cointegrated Time Series: A Guide to Estimation and Hypothesis Testing," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 56(3), pages 325-53, August.
    13. Clark, Peter K., 1989. "Trend reversion in real output and unemployment," Journal of Econometrics, Elsevier, vol. 40(1), pages 15-32, January.
    14. Stock, James H & Watson, Mark W, 1988. "Variable Trends in Economic Time Series," Journal of Economic Perspectives, American Economic Association, vol. 2(3), pages 147-74, Summer.
    15. Murray, Christian J. & Nelson, Charles R., 2000. "The uncertain trend in U.S. GDP," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 79-95, August.
    16. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Discussion Paper / Institute for Empirical Macroeconomics 24, Federal Reserve Bank of Minneapolis.
    17. Stadler, George W, 1990. "Business Cycle Models with Endogenous Technology," American Economic Review, American Economic Association, vol. 80(4), pages 763-78, September.
    18. DeJong, David N. & Nankervis, John C. & Savin, N. E. & Whiteman, Charles H., 1992. "The power problems of unit root test in time series with autoregressive errors," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 323-343.
    19. Robin L. Lumsdaine & David H. Papell, 1997. "Multiple Trend Breaks And The Unit-Root Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 79(2), pages 212-218, May.
    20. Granger, C. W. J. & Newbold, P., 1974. "Spurious regressions in econometrics," Journal of Econometrics, Elsevier, vol. 2(2), pages 111-120, July.
    21. Diebold, Francis X & Rudebusch, Glenn D, 1992. "Have Postwar Economic Fluctuations Been Stabilized?," American Economic Review, American Economic Association, vol. 82(4), pages 993-1005, September.
    22. Dolado, Juan J & Jenkinson, Tim & Sosvilla-Rivero, Simon, 1990. " Cointegration and Unit Roots," Journal of Economic Surveys, Wiley Blackwell, vol. 4(3), pages 249-73.
    23. Fatas, Antonio, 2000. "Endogenous growth and stochastic trends," Journal of Monetary Economics, Elsevier, vol. 45(1), pages 107-128, February.
    24. Christiano, Lawrence J, 1992. "Searching for a Break in GNP," Journal of Business & Economic Statistics, American Statistical Association, vol. 10(3), pages 237-50, July.
    25. Harry Bloch & David Sapsford, . "Prebisch and Singer Effects on the Terms of Trade Between Primary Producers and Manufacturers," Working Papers ec6/96, Department of Economics, University of Lancaster.
    26. Phillips, P C B, 1987. "Time Series Regression with a Unit Root," Econometrica, Econometric Society, vol. 55(2), pages 277-301, March.
    27. Rao, J. Mohan, 1989. "Getting agricultural prices right," Food Policy, Elsevier, vol. 14(1), pages 28-42, February.
    28. Peter C.B. Phillips, 1985. "Understanding Spurious Regressions in Econometrics," Cowles Foundation Discussion Papers 757, Cowles Foundation for Research in Economics, Yale University.
    29. Kormendi, Roger C & Meguire, Philip, 1990. "A Multicountry Characterization of the Nonstationarity of Aggregate Output," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 22(1), pages 77-93, February.
    30. Carmen M. Reinhart & Peter Wickham, 1994. "Commodity Prices: Cyclical Weakness or Secular Decline?," IMF Staff Papers, Palgrave Macmillan, vol. 41(2), pages 175-213, June.
    31. Param Silvapulle, 1996. "Testing for a unit root in a time series with mean shifts," Applied Economics Letters, Taylor & Francis Journals, vol. 3(10), pages 629-635.
    32. Plosser, C.I., 1989. "Understanding Real Business Cycles," RCER Working Papers 198, University of Rochester - Center for Economic Research (RCER).
    33. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-72, June.
    34. Issler, Joao Victor & Vahid, Farshid, 2001. "Common cycles and the importance of transitory shocks to macroeconomic aggregates," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 449-475, June.
    35. Denis Kwiatkowski & Peter C.B. Phillips & Peter Schmidt, 1991. "Testing the Null Hypothesis of Stationarity Against the Alternative of a Unit Root: How Sure Are We That Economic Time Series Have a Unit Root?," Cowles Foundation Discussion Papers 979, Cowles Foundation for Research in Economics, Yale University.
    36. Rappoport, Peter & Reichlin, Lucrezia, 1989. "Segmented Trends and Non-stationary Time Series," Economic Journal, Royal Economic Society, vol. 99(395), pages 168-77, Supplemen.
    37. Charemza, Wojciech W. & Syczewska, Ewa M., 1998. "Joint application of the Dickey-Fuller and KPSS tests," Economics Letters, Elsevier, vol. 61(1), pages 17-21, October.
    38. Kenneth D. West, 1987. "On the Interpretation of Near Random-Walk Behavior in GNP," NBER Working Papers 2364, National Bureau of Economic Research, Inc.
    39. Yin-Wong Cheung & Menzie D. Chinn, 1996. "Further Investigation of the Uncertain Unit Root in GNP," NBER Technical Working Papers 0206, National Bureau of Economic Research, Inc.
    40. Campbell, John & Perron, Pierre, 1991. "Pitfalls and Opportunities: What Macroeconomists Should Know about Unit Roots," Scholarly Articles 3374863, Harvard University Department of Economics.
    41. Binswanger, Hans & Yang, Maw-Cheng & Bowers, Alan & Mundlak, Yair, 1987. "On the determinants of cross-country aggregate agricultural supply," Journal of Econometrics, Elsevier, vol. 36(1-2), pages 111-131.
    42. David Sapsford & V. N. Balasubramanyam, 1999. "Trend and volatility in the net barter terms of trade, 1900-92: new results from the application of a (not so) new method," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(6), pages 851-857.
    43. John Y. Campbell & N. Gregory Mankiw, 1987. "Permanent and Transitory Components in Macroeconomic Fluctuations," NBER Working Papers 2169, National Bureau of Economic Research, Inc.
    44. Johansen, Søren & Juselius, Katarina, 1992. "Testing structural hypotheses in a multivariate cointegration analysis of the PPP and the UIP for UK," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 211-244.
    45. Mayadunne, Geetha & Evans, Merran & Inder, Brett, 1995. "An Empirical Investigation of Shock Persistence in Economic Time Series," The Economic Record, The Economic Society of Australia, vol. 71(213), pages 145-56, June.
    46. Perron, P., 1989. "Testing For A Unit Root In A Time Series With A Changing Mean," Papers 347, Princeton, Department of Economics - Econometric Research Program.
    47. DeJong, David N, et al, 1992. "Integration versus Trend Stationarity in Time Series," Econometrica, Econometric Society, vol. 60(2), pages 423-33, March.
    48. Leybourne, S J & McCabe, B P M, 1994. "A Consistent Test for a Unit Root," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 157-66, April.
    49. Powell, Andrew, 1991. "Commodity and Developing Country Terms of Trade: What Does the Long Run Show?," Economic Journal, Royal Economic Society, vol. 101(409), pages 1485-96, November.
    50. Leon, Javier & Soto, Raimundo, 1995. "Structural breaks and long-run trends in commodity prices," Policy Research Working Paper Series 1406, The World Bank.
    51. Cochrane, John H, 1988. "How Big Is the Random Walk in GNP?," Journal of Political Economy, University of Chicago Press, vol. 96(5), pages 893-920, October.
    52. Rao, J. Mohan, 1989. "Agricultural supply response: A survey," Agricultural Economics, Blackwell, vol. 3(1), pages 1-22, March.
    53. Bleaney, Michael F & Greenaway, David, 1993. "Long-Run Trends in the Relative Price of Primary Commodities and in the Terms of Trade of Developing Countries," Oxford Economic Papers, Oxford University Press, vol. 45(3), pages 349-63, July.
    54. D. Sapsford & P. Sarkar & H. W. Singer, 1992. "The prebisch‐singer terms of trade controversy revisited," Journal of International Development, John Wiley & Sons, Ltd., vol. 4(3), pages 315-332, 05.
    55. Diebold, Francis X & Senhadji, Abdelhak S, 1996. "The Uncertain Unit Root in Real GNP: Comment," American Economic Review, American Economic Association, vol. 86(5), pages 1291-98, December.
    56. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Unit roots in real GNP: do we know, and do we care?," Working Paper Series, Macroeconomic Issues 90-2, Federal Reserve Bank of Chicago.
    57. Gil-Alana, L. A. & Robinson, P. M., 1997. "Testing of unit root and other nonstationary hypotheses in macroeconomic time series," Journal of Econometrics, Elsevier, vol. 80(2), pages 241-268, October.
    58. Blough, Stephen R, 1992. "The Relationship between Power and Level for Generic Unit Root Tests in Finite Samples," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(3), pages 295-308, July-Sept.
    59. Peter Wickham & Carmen Reinhart, 1994. "Commodity Prices," IMF Working Papers 94/7, International Monetary Fund.
    60. Cochrane, John H, 1994. "Permanent and Transitory Components of GNP and Stock Prices," The Quarterly Journal of Economics, MIT Press, vol. 109(1), pages 241-65, February.
    61. Schwert, G William, 2002. "Tests for Unit Roots: A Monte Carlo Investigation," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 5-17, January.
    62. Campbell, John Y. & Mankiw, N. Gregory, 1989. "International evidence on the persistence of economic fluctuations," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 319-333, March.
    63. Stock, James H. & Watson, Mark W., 1986. "Does GNP have a unit root?," Economics Letters, Elsevier, vol. 22(2-3), pages 147-151.
    64. Granger, Clive W J, 1997. "On Modelling the Long Run in Applied Economics," Economic Journal, Royal Economic Society, vol. 107(440), pages 169-77, January.
    65. Matthew D. Shapiro, 1987. "Supply Shocks in Macroeconomics," Cowles Foundation Discussion Papers 821, Cowles Foundation for Research in Economics, Yale University.
    66. Raj, Baldev, 1992. "International Evidence on Persistence in Output in the Presence of an Episodic Change," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 7(3), pages 281-93, July-Sept.
    67. Cochrane, John H., 1991. "A critique of the application of unit root tests," Journal of Economic Dynamics and Control, Elsevier, vol. 15(2), pages 275-284, April.
    68. Matthias G. Lutz, 1999. "Commodity terms of trade and individual countries' net barter terms of trade: Is there an empirical relationship?," Journal of International Development, John Wiley & Sons, Ltd., vol. 11(6), pages 859-870.
    69. David A. Dickey & Dennis W. Jansen & Daniel L. Thornton, 1991. "A primer on cointegration with an application to money and income," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 58-78.
    70. Shin, Yongcheol & Schmidt, Peter, 1992. "The KPSS stationarity test as a unit root test," Economics Letters, Elsevier, vol. 38(4), pages 387-392, April.
    71. Nunes, Luis C & Newbold, Paul & Kuan, Chung-Ming, 1997. "Testing for Unit Roots with Breaks: Evidence on the Great Crash and the Unit Root Hypothesis Reconsidered," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 59(4), pages 435-48, November.
    72. Bloch, Harry & Sapsford, David, 2000. "Whither the Terms of Trade? An Elaboration of the Prebisch-Singer Hypothesis," Cambridge Journal of Economics, Oxford University Press, vol. 24(4), pages 461-81, July.
    73. Stadler, G. W., 1986. "Real versus monetary business cycle theory and the statistical characteristics of output fluctuations," Economics Letters, Elsevier, vol. 22(1), pages 51-54.
    74. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:cde:cdewps:115. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Vinayan. K.P).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.