Dynamic Modeling of Private Investment in Agricultural Sector of Pakistan

Abstract

Agriculture is the single largest sector of the economy of Pakistan, which has a large number of for warding and back warding linkages. This sector is contributing 21 percent to GDP and employing 44 percent of the workforce. Like other developing countries, poverty in Pakistan is a rural phenomenon; therefore, its development will be a principal vehicle for alleviating poverty. Recent global food crises again providing an opportunity for developing countries like Pakistan to give more serious attention to the development of agriculture. There is no doubt that development of agriculture depends on investment in this sector. Investment is a central issue in macroeconomic theory; it plays an important role in economic growth of a country as it raises the productive capacity of the economy and promotes technological progress through embodiment of new techniques. Investment spending is usually volatile because it depends on multiple factors, and is responsible for much of the fluctuations of GDP over the business cycle [Dornbush, et al. (1999)]. Therefore, it is very important to explore the determinants of investment. The Classicals (Smith, Ricardo, Say, Marshall, and others) maintained that free markets are the best route to national prosperity and economic growth, and there is no need of government intervention to activate and regulate the economy. Keynesians (1936), on the other hand, believed that there is need for government intervention to activate and regulate the saving and investment behaviour of the society.