Abstract
This paper examines aggregate supply response of 19 selected crops in Algerian agriculture during the 1966-2018 period by employing cointegration analysis and error correction model (ECM). It tests whether there has been a long-run equilibrium relationship between agricultural outputs and prices, besides a confirmation about the responsiveness of agricultural supply to economic incentives (prices). Findings indicate that the long-run elasticities of all selected crops with respect to prices are statistically significant and mostly low, whereas short-run elasticities are lower, which appeals to the adequacy of adjustment to economic incentives. Furthermore, the results of the ECM confirmed the positive responsiveness to prices with differential rates of adjustment for selected crops, ruling out the applicability of a presumed perverse supply response in Algerian agriculture.
Highlights
Over the past fifty years, the agricultural sector has played a changing role in the Algerian economy
The section contains empirical results of cointegration analysis that addresses the patterns of supply and main estimation results of 38 regressions for the supply functions of the selected crops
All the series in cropped areas and crop prices were associated with t statistic that is greater than the critical value for the rejection of unit root for each Augmented Dickey-Fuller (ADF) test
Summary
Over the past fifty years, the agricultural sector has played a changing role in the Algerian economy. It turns out that the poor performance recorded over such long run period is due to the alteration of the incentive structures of agricultural production. The more interesting aspect, in the context of Mediterranean agriculture, is that price volatility affects the food security (Lacirignola et al, 2015) and harms the performances of poor small farmers. A detailed and in-depth examination of the agricultural supply in Algerian agriculture is needed. In order to do so, supply response modeling is a tool largely used to evaluate the effectiveness and success of pricing policies regarding farm resources allocation, the role of the agricultural sector, and provides insightful assessments for formulation of economic policy in agricultural production sector
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