Endogenous structural breaks, public investment in agriculture and agricultural land productivity in Taiwan

Abstract

Using time-series data for Taiwan's agricultural sector and with the government's public investment in the agricultural sector serving as a proxy variable for nonfarm current inputs aside from the original labour and capital input variables usually taken into consideration, this article examines the relationship between public investment in agriculture (public investment/land) and agricultural land productivity (output/land) in Taiwan. Our main findings are as follows. First, the cointegration test reveals that public investment in agriculture and the productivity of agricultural land exhibit a significant positive relationship in the long run, where the elasticity of land productivity in relation to public investment in agriculture is 0.55. Second, when controlling for endogenous structural breaks, the long-run equilibrium relationship for the productivity of the agricultural land model is still supported. Third, the results of the weak exogeneity test indicate that a causal relationship exists in the long run between public investment in agriculture and the productivity of land, indicating that the growth of the agricultural sector must in the long run be based on the government's public investment in the agricultural sector. Furthermore, as the agricultural sector grows, this growth is able to stimulate public investment on the part of the government in the agricultural sector, so that the two affect each other. Fourth, from the short-run error correction model estimation, it is found that public investment in agriculture is a major means of adjusting for the disequilibria that occur within the system. Fifth, in the short run, the unidirectional causal relationship in terms of the productivity of agricultural land on public investment in agriculture is established, otherwise it is not established. From this it can be seen that in the short run, the government is unable to reveal the effectiveness of its public investment in agriculture.