The Effect of Government Expenditure on the Growth and Convergence of the Agricultural Sector (Panal Data Approach)

مجله اقتصاد و توسعه کشاورزی

Article 6, Volume 32, Issue 4 - Serial Number 42, January 2019, Pages 343-353   

Document Type: Research Article

DOI: 10.22067/jead2.v32i4.74095

Authors

A.R. Chobdar; M. Aghapour Sabbaghi^*

Islamic azad university Shoshtar branch

Abstract

Introduction: Considering that achieving economic growth and development is one of the most important goals of any economic system, the identification of factors affecting economic growth has long been a subject discussed by economic experts .  So far, there are two general attitudes concerning government's presence in the economy. One is the attitude of the minimal government, the origin of which is the physiocratic and classical schools, and the other is the maximum government supported by schools against classics presented by Marxists and socialists. The experiences of the developed countries illustrate the fact that the development of these countries has begun with a revolution in the agricultural sector.   In these countries, particular importance is usually given to  extending agriculture and can be achieved in various ways, such as supplying labor, capital, raw materials, meals and foreign currency to economic development  and alsocreating a market for manufactured goods in the industrial sector.  The economic growth of this sector also has been mentioned as a driving factor in the growth of other economic sectors. Analyzing the factors influencing this growth will be an important step towards the economic development of countries .  In most developing countries, the factors affecting the growth and development of the agricultural sector due to government policies ,as one of the central issues, have been explored and analyzed. Given the dual nature of the effect of government size on growth in the agricultural sector, the study aimed to analyze the effects of convergence and its impact on economic growth in the country's provinces Despite many studies in this field done in the country scale, in current study, with emphasis on the use of panel data, information from all provinces in the period  is used for the estimation.
Materials and Methods: The effect of government size on economic growth has led to extensive studies that these studies have tried to explain the observed phenomena. In this study, toward analyzing the effect of size of government on the agricultural sector growth, the binomial production function of Ram was first considered and then to differentiate the effects of capital types, the generalized model of the Mankijo-Romer-Weil model (MRW) has been applied. In this study according to the model of Mankiw - Romer and Weil ( MRW ), capital variable is considered in its various components including physical, social and human capital. Based on this model and using panel data provinces in the period 2007-2016 the effect of government size on  the agricultural sector growth is studied. Another purpose of this study is to evaluate the convergence of the agricultural sector at the province level in both absolute and conditional beta forms.
Results and Discussion: The study of beta coefficients demonstrates that there is convergence in the value added of agricultural sector across the provinces of the country . On average, it lasts about 17 years to cover half of the distance between its initial position and its steady state. Inclusion of the government has reduced the speed of adjustment and convergence among the provinces.
According to the results of the related tests, a fixed effect pattern has been considered for model estimation. Results denote that all variables entered in the model except labor force, have significant positive effect on the growth of agriculture. The valu of coefficients for two variables, the ratio of current and development expenditures to gross domestic product, which indicates the size of government in this study, have been estimated 0.1 and 0.6 suggests that an increase in government size can have a positive effect on the agricultural sector growth. Summing up the effects of these two variables shows that despite the pursuit of privatization policy in the country with the aim of reducing the size of the state, the agricultural sector is also affected by the government and its policies and the growing state can lead to the  development of agriculture and consequently to growth within the country. In the model for estimation of development expenditures,  current expenditures is more influential onthe agricultural sector growth .
 Conclusion: The results of the study show that increasing the size of government can expand the  agricultural sector growth of the country. Therefore, it is necessary to implement the policy of reducing government and reducing support on the agricultural sector gradually while taking into account all aspects. The rapid decline in government investments in this sector, especially in infrastructure investment, can reduce the growth and development of issues such as the spread of poverty and the migration of villagers. Also, as results, it is observed that the effect of development expenditures on agricultural sector is higher than current expenditures. This suggests that fixed investment and the creation of capital assets are considered as more powerful tools for the agricultural sector growth. The results of Beta convergence study indicate the convergence of agricultural sector growth among provinces of the country. By comparing two models with and without the government, although government policies and programs can increase agricultural growth, these policies have reduced the rate of convergence between the provinces. This means that the government's policies have not been successful enough to help poor provinces in the agricultural sector and the continued allocation of resources and facilities to the provinces could lead to more discrimination among the provinces. Therefore, it is suggested to focus on allocating and distributing state funds, facilities and agricultural infrastructure and services in balanced form with aim of reducing provincial imbalances.

Keywords

Panel Data; Capital expenditures; Current expenditures; beta convergence

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