Econometric Analysis on the Farm and Non-Farm Linkages with Respect to Employment and Output: The Post- Independent Indian Scenario

Strong relationships across different sectors are the preconditions for the sustainable growth and development of any economy in the world. Though, the reality is that, in many economies such good coordination does not work properly. Agriculture, industry and service are the three prime sectors in an economy out of which the first one is the farm sector and the remaining two taken jointly is the non-farm sector. The contributions of output and employment by the sectors constitute almost the entire economy’s output and employment. The present study investigates whether there are long run and short run linkages in output and employment within and between the farm and non-farm sectors in India for the period 1973-2018 using the time series econometric approach. The study finds stable long run relations between output and employment in levels and growth rates for industry and service sectors. Regarding the farm and non-farm sectors’ linkages in levels and growths of output and employment, the results show that agricultural GDP maintains long run relations with total non-farm GDP but the results do not hold in case of employment. In the short run, the study observes, in most cases, that levels and growths of GDP become the causal factors of levels and growths of employment but not the reverse. Hence, it is recommended that the economic and sectoral expansions are necessarily required for employment generation for the country.