Determinants of Sectoral Growth in Pakistan:A KalmanFilter Based Time Varying Parametric Approach

Abstract

Structure of the economy changes over a time. Fixed parameter approaches do not considerimpact of structural changes on constancy of estimated parameters. The studyaddresses the weaknesses of non-varyingparametric techniquesand usesnon fixedparametrictechnique to examine associationbetween sectoral growth and their determining factors. The findings revealthat capitalformation, foreign remittances,and permanent crop land reduce agriculturalsector growth while gross national expenditures results in growth of the sector. The significantfactors thataffectindustrial growth are external debt, foreign direct investment and gross national expenditures. Above mentioned determinantsare positively associated with the industrial sector growth in Pakistan. Services sector growth is determined by consumer price index, gross national expendituresand foreign direct investment. The foreign direct investment and gross national expenditures cause services sector growth while consumer price index retard it. While considering findings, the concernedauthorities should control growth retarding factors and augment the factors that increase sectoral growth of the country.