The Impact of Agricultural Exports to China on Economic Growth of Peru: A Short- and Long-Run Analysis

Abstract

This study aimed to analyze and quantify the short and long-run impact of agricultural exports to China on economic growth in Peru using an annual time series data from 2001 to 2016 obtained from the Central Bank of Peru, the World Bank, and Trade Map. Agricultural exports value, labour force, and fixed capital formation value for each year of the stipulated period were used as determinant factors of the economic growth. Vector Autoregression (VAR) Model, Augmented Dickey-Fuller test, Johansen Co-integration test, and Granger Causality test was employed for data analysis. The findings revealed that, in the short run, the agricultural sector and agricultural exports value to China have a positive, but non-significant effect on economic growth of Peru. At the same time, both fixed capital formation and labour force have a positive and significant impact on the GDP. ADF test showed that all determinants achieved stationary at a level I (0). Moreover, the Co-integration test result revealed a long-run relationship between the studied variables, and a unidirectional causality in the relationship between all variables and the economic growth except the relationship between the economic growth and the fixed capital formation, which revealed a bidirectional link. This study recommends policy options including the substantial investment in commercialization of agricultural products with added value and human capital development to improve the agriculture sector’s performance in the Peruvian economy as a driver of sustainable economic growth.