Examining the Inter-Sectoral Relationship, Productivity and Inclusive Growth of Pakistani and Indonesian Economies

Abstract

Inclusive growth is progressing the diverse patterns, backgrounds, and sectors of an economy. As an equitable economy has more potential for prosperity so reducing the inequalities and enhancing the productivity of workers in all the sectors of the economy is a core concern for emerging policies. Sectoral interlinkages and patterns of production are the basis for economic growth and essential for welfare outcomes. Therefore, the study analyzes the sectoral integration of Pakistan and Indonesian economies using the dataset from 1980 to 2019. For this purpose, the productive efficiency of workers is focused on three major sectors of economies i.e., services, manufacturing, and agriculture sector. In this study, we have used the VAR model to assess the integration and causal relationship among sectors and found that the per capita value addition of labor is relatively higher in the manufacturing sector of Pakistan and Indonesia. More than 36 percent of employed labor is in the agriculture sector of Pakistan but it has a slow growth rate of only 0.97 percent in 2019. Indonesia has the second-highest employment in the agriculture sector (i.e., 3.6 percent) but the lowest per capita value-added. This indicates slow development and high deprivations in the agriculture sector of both economies particularly in terms of opportunities. The services sector of Pakistan is categorized as a major sector in terms of employment with the highest growth rate that is approximately 3.7 percent whereas the Indonesian services sector has also employed a large share of total employment i.e., 48.9 percent in 2019. But it is found that the value-added production of Indonesia has been lower in services than in the industrial sector. We found a positive association of the services sector with agriculture is found in both economies but there is a negative relationship between agriculture and industry for Pakistan. Therefore, it is suggested to focus the skill development programs aligned with sectoral requirements and provide incentives for efficient allocation of employment across sectors to get the benefits of growth in a broad base.