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Econometric Investigation Of Short-Run And Long-Run Relationships Between Gdp And Agricultural Gdp Of Bangladesh

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  • Kabir, Md. Humayun

Abstract

The study is an attempt to investigate long-run and short-run relationships between gross domestic product (GDP) and agricultural GDP of Bangladesh applying the Vector Error Correction Model (VECM). The data published by the BBS for the period 1972-73 to 2015-16 was used. As preconditions of VECM, the stationarity of the time series data and co-integration of the variables were tested. The GDP and agricultural GDP in logarithm forms were found integrated of the order one (d=1) and co-integration of rank one (r=1).The coefficient (beta) of estimated long-run equilibrium equation was positive and significant implying a long-run equilibrium relationship between GDP and agricultural GDP. A positive and significant time trend was also observed in the co-integrating equation. Both coefficients (alpha) of the error correction terms (ECTs) in the VECM, which indicate the rates of short-run adjustments towards the long-run equilibrium, were negative and significant confirming consistency with the theory. Since both ECTs were negative and significant, there was a long-run bi-directional causality running from agricultural GDP to GDP and vice-versa. Responding to a positive shock in agricultural GDP, the GDP gradually increases while due to shock in GDP, the agricultural GDP decreases in the initial stage and increases gradually thereafter. Various post-estimation specification tests were performed and the estimated parameters of the model were found consistent and efficient.

Suggested Citation

  • Kabir, Md. Humayun, 2019. "Econometric Investigation Of Short-Run And Long-Run Relationships Between Gdp And Agricultural Gdp Of Bangladesh," Bangladesh Journal of Agricultural Economics, Bangladesh Agricultural University, vol. 39(1&2), December.
    • Handle: RePEc:ags:bdbjaf:304083
    DOI: 10.22004/ag.econ.304083
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    References listed on IDEAS

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    1. Helmut Lütkepohl, 2005. "New Introduction to Multiple Time Series Analysis," Springer Books, Springer, number 978-3-540-27752-1, December.
    2. Gollin, Douglas, 2010. "Agricultural Productivity and Economic Growth," Handbook of Agricultural Economics, in: Robert Evenson & Prabhu Pingali (ed.), Handbook of Agricultural Economics, edition 1, volume 4, chapter 73, pages 3825-3866, Elsevier.
    3. 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 1057-1072, June.
    4. 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.
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