An Empirical Study of Inter-Sectoral Linkages and Economic Growth in India

M. R. Singariya^1, and S. C. Naval¹

¹Lecturer in Economics, Goverment College Jaitaran (Raj)

Cite this paper:
M. R. Singariya and S. C. Naval. An Empirical Study of Inter-Sectoral Linkages and Economic Growth in India. American Journal of Rural Development. 2016; 4(4):78-84. doi: 10.12691/ajrd-4-4-1

Abstract

The objective of the present paper is to examine casual relationship between GDP, agricultural, industrial and service sector output in India using time series data from 1950-51 to 2011-12.The study conducts an econometric investigation by applying methodologies, viz., Stationary tests, and Johansen’s Cointegration test, Johansen’s Vector Error Correction Model (VECM) in VAR and Impulse Response Function and Variance Decomposition Analysis. With all the variables in log terms being I(1), Johansen’s co-integration test confirms two long run relationships among the variables at 5% significance level. It reveals that there exists bidirectional causality among the agriculture, industry, service sector and GDP and agriculture and industrial sector with services sector, while there is a unidirectional causality between agriculture and industry sector. However, results based on vector error correction model indicate a weak association between the sectors in the short run. Dynamic causality results show that contribution GDP forecast error by the services sector is the highest, followed by agriculture and industry sectors, while the contribution to the agriculture sector forecast error by GDP is the highest, followed by the service sector and industry. In the case of the industry sector, the explanatory power of one standard deviation innovation in the agriculture sector and the services sector to forecast error variance is quite high (33.38% and 5.38%). Further, results of decomposition variance analysis and impulse response suggest that the agriculture sector plays the main role in determining the overall growth rate of the economy through its linkages to other sector. The analysis of inter – sectoral linkages identify agriculture as the main economic activity that controls most economic activities in India.

Keywords:
GDP agriculture industry services sector Cointegration and Vector Error Correction Model Impulse Response Function and Variance decomposition analysis

This work is licensed under a Creative Commons Attribution 4.0 International License. To view a copy of this license, visit http://creativecommons.org/licenses/by/4.0/

References:

[1]	Ahluwalia I J and C Rangarajan (1986), “Agriculture and Industry: A study of Linkages the Indian Experience”, mimeo, World Economic Congress of International Association, December.
[2]	Bathla, S (2003): “Inter-sectoral Growth Linkages in India: Implications for Policy and Liberalized Reforms”, Institute of Economic Growth Discussion Papers, No 77, Institute of Economic Growth, Delhi.
[3]	Bhanumurthy, N.R. and Arup Mitra (2003), “Declining Poverty in India: A Decomposition Analysis”, Discussion Paper Series No. 70/2003, Institute of Economic Growth, University of Delhi Enclave.
[4]	Bhattacharya, B.B. and Arup Mitra (1997), “Changing Composition of Employment in Tertiary Sector: A Cross Country Analysis”, Economic and Political Weekly, March 15.
[5]	Central Statistical Organisation of India (CSO), (2014), Data Book Compiled for use of planning commission of India, New Delhi, Page No 3-8.
[6]	Devnath, Avijit and Niranjan Roy (2012), “Structural Change and Inter-sectoral Linkages: The Case of Northeast India”, Economic and Political Weekly, Vol. XLVII, No.6. Pp. 72-76, 11 February.
[7]	Engle, R.F. and C.W.J. Granger (1987), “Co-integration and Error-Correction: Representation, Estimation and Testing”, Econometrica, Vol.55, pp. 251-276.
[8]	Hansda, S (2001): “Sustainability of Services-led Growth: An Input-Output Analysis of the Indian Economy”, Reserve Bank of India Occasional Papers, Vol 22, pp 73-118.
[9]	Johansen, S (1988), “Statistical Analysis of Cointegration Vectors”, Journal of Economic Dynamics and Control, Vol. 12, pp. 231.54.
[10]	Kanwar, Sunil (1996), “Does the Dog Wag the Tail or the Tail the Dog: Cointegration of Indian Agriculture with Non-agriculture”, CDE Working Paper No. 35, Delhi School of Economics, Delhi.
[11]	Panda, Manoj (2008), “Economic Development in Orissa: Growth Without Inclusion?”,Working Paper Series No-2008-025, Indira Gandhi Institute of Development Research, Mumbai, [available fromhttp://www.igidr.ac.in/pdf/publication/WP-2008-025.pdf]
[12]	Parthasarathy G. (1984),’Growth and Fluctuations of Agricultural Production: A District wise Analysis, in Andhra Pradesh, Economic and Political Weekly, Vol. 19, No. 26, June 30, pp. A74-A 84.
[13]	Rangarajan, C (1982), “Agricultural Growth and Industrial Performance in India”, Research Report No.33, International Food Policy Research Institute, Washington D.C.
[14]	Rath, D. P. And Raj Rajesh (2006), ‘Analytics and Implications of Services Sector Growth in Indian Economy’, The Journal of Income and Wealth, Vol.28 (1), 47-62.
[15]	Saikia, Dilip (2011), “Analyzing Inter-sectoral linkages in India”, African Journal of Agricultural Research, Vol. 6, No.33, pp. 6766-6775, 30 December.
[16]	Sastry, D, V S, B Singh, K Bhattacharya and N K Unnikrishnan (2003): “Sectoral Linkages and Growth: Prospects Reflection on the Indian Economy”, Economic & Political Weekly, 14 June, Vol 38, pp. 2390-97.
[17]	Litterman, R. (1979). “Techniques of forecasting using Vector Auto Regression”, Working Paper No. 115, Federal Reserve Bank of Minneapolis.