The Impact of Financial Sector Development on Agricultural Growth: Empirical Evidence from Pakistan

Authors

  • Dr. Mohammad Rizwan-ul-Hassan

Abstract

The paper examines the impact of financial sector development on agricultural growth in Pakistan. A Cobb-Douglas production function was used with two proxies for financial sector development, i.e. broad money M3 as proportion of GDP and agricultural loan disbursement. The study utilized annual data for the period 1981-2015. A VAR model was applied to explore the relationship between the performance of agricultural sector and improvement in financial services in the country. The results of the Johansen co integration test and VECM model reveals a significant positive relationship between agricultural growth and capital formation, farm credit disbursement and liquid liability in the financial sector. The relationship with rural labor force was mixed which may be attributed to the over employment of labor in the agricultural sector. The study is unique as it uses farm credit disbursement as an important dimension of financial services. The study recommends that for improving agricultural productivity, financial services have to be made more efficient.Keywords: Financial Sector Development, Agricultural Growth, Farm Credit Disbursement.

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Published

2017-12-13