Analysis of the impact of agricultural sector on economic growth

This study examines contribution of agriculture to economic growth using a panel data of 71 countries for the period 1985-2004. In order to account for differences in the level of economic growth in the selected economies, the data was divided into three categories based on income: low, middle and high income. The result of ordinary least squares (OLS) regression analysis show that agriculture plays a positive role in economic growth in the low income and the middle income countries. In contrast, the role of agriculture is found to be insignificant in the high income countries. The results of fixed effects analysis also support the positive role of agriculture in growth in the low income countries. Together, these results suggest that the role of the agricultural sector changes from a dominant sector to a declining sector when a country moves from a low or middle income status to high income category. As suggested in past studies, this result could be explained by the observed higher productivity in the industrial sector compared to agricultural sector. These results recommend that agriculture development should be given higher priority in the development strategy of low and middle income countries.;In addition to agriculture, the impact of social, economic and political factors on economic growth were also investigated. There is empirical evidence indicating that gross capital formation enhances economic growth in all the three national income categories. Futhermore, the results show that increase in exports leads to increase in economic growth. This can be explained based on increased market size leading to economies of scale, and increased competition leading to higher efficiency. In contrast, the evidence for the impact of higher fertility rate is mixed. While higher fertility rate deters economic growth in the middle income countries, it promotes economic growth in the high income countries. This study also highlights the importance of high life expectancy. The results show that higher life expectancy promotes economic growth in all the income groups which may be due to an indication of better health of the population. Also, the secondary school enrollment ratio variable was found to be positively related with growth.;Finally, the study examines the influence of political institutional factors on economic growth. These factors are corruption, government stability and investment profile. As expected, the results show that corruption is negatively associated with growth in middle income and high income countries. Furthermore, the combined analysis of all the countries revealed that corruption deters growth. OLS regression and fixed effects analyses show that higher investment risk deters growth in the middle income countries. Surprisingly, the results showed that government instability is associated with economic growth in the middle and high income countries.