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.
Highlights
Inclusive growth refers to involving every member of society in the process of economic development and share its outcomes
We find the evidence of unit root of Indonesian agriculture and services productivity, whereas the series of industrial productivity is stationary at 10% level
ADF critical Value (***1%=-3.64, **5%=-2.95, *10%=-2.61) Second, Vector Autoregression (VAR) model for Pakistan is estimated by using Unrestricted Reduced Form (URF) equations of level series (Table 2)
Summary
Inclusive growth refers to involving every member of society in the process of economic development and share its outcomes. It is a broad-based approach with long-run prospects that emphasize the equitable distribution of opportunities across all sectors Productive efficiency of human resources is inevitable for effective transformation of structural composition. In this context, value-added production and competitive participation of labor in agriculture, industry, and services sectors is one of the key channels to ensure pro-poor development (McKinley, 2010). It is important to ensure that productivity and sectoral relationships are a means but not the end to avail welfare outcomes and improved living conditions of all (Anand et al, 2013)
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