Monetary and fiscal policies' effect on agricultural growth: GMM estimation and simulation analysis

Abstract

The concept of sustainable economic growth is closely linked with the agricultural growth. This is especially true in the context of under-developed countries. Pakistan is a typical under-developed country that has huge labor force employed in conventional rural economy and more than half of the population relies on agriculture for subsistence. The study examines the agricultural growth through developing a model using the data from agricultural sector of Pakistan for the period 1972–2010. The model is primarily based on input–output reduced form structural equations approach. It is then estimated by GMM, validated and used for deterministic simulation analyses. Finally the validated model is used to critically analyze the impact of fiscal, monetary and energy policies on the agricultural output. We conluded that recent fiscal and monetary policies should be continued, while the energy policy needs to be modified in order to improve the agricultural GDP and reduce the rural poverty situation in the country.