THE RELATIONSHIP BETWEEN ECONOMIC GROWTH, HUMAN CAPITAL, AND AGRICULTURE SECTOR: EMPIRICAL EVIDENCE FROM INDONESIA

Abstract

The objective of this study to investigate the long and short-term relationship between economic growth, human capital, and agriculture sector in Indonesia. In addition, to analyze the interrelationship between economic growth and agriculture added value. The data used is time series data in the period 1985-2017 obtained world development indicators from the World Bank database. The analytical approach used is of causality with the vector error correction model (VECM) and simultaneous equations model with two-stage least square (2SLS). The finding of this study, first, in agricultural added value equation indicates the validity of the long and short-term equilibrium relationship between variables, there is long and short-term causality in the direction of economic growth, human capital for agriculture added value; second, the finding in the economic growth model indicates that human capital, agriculture added value, population, government expenditure, foreign direct investment, nonagricultural added value, and technology has positive sign and significant effect on the economic growth; third, the finding in the agriculture added value model indicates that human capital, economic growth, government expenditure, rural population, and technology has positive and significant effect on agricultural added value. Meanwhile, non-agricultural added value has a negative sign and significant effect on agriculture added value.