Title : Does Government Subsidies on Agricultural Sector Cause Agricultural Development in Bangladesh?

Authors : Md. Sharif Hossain

Abstract : In this paper the principal purpose has been made to investigate the causal relationship between government subsidy on agricultural sector and agricultural development. The Granger-F test and LM tests have been applied to find the causal relationship between government subsidies and agricultural production. Before doing this, the unit root tests are applied to know the existence of non-stationarity in the series of agricultural production, and government subsidies on agricultural sector with and without structural breaks. The co-integrated test is applied to know that this pair of variables shares the same stochastic trend or not. The analyses cover annual time series data from 1973/74 to 2008/09. From the analysis it has been found that the government subsidy does not cause the agricultural development, but agricultural development causes government subsidy. Thus unidirectional causality has prevailed between government subsidy and agricultural development in Bangladesh economy. It has also been found that both variables are integrated of order 1 with and without structural breaks but they do not bear the mutual dependence for economic development in Bangladesh economy. Also regression analysis has been conducted in order to examine the statistical association between the agricultural production and government subsidies in the short-run. From t-test and F-test results, it has been found that the relationship is insignificant from government subsidies to agricultural development. This clearly indicates that government subsidy on agricultural sector is not playing any significant role for agricultural development in Bangladesh economy. From diagnostics checking it has been found that the residuals are normally distributed with mean zero, residuals are not auto-correlated, there is no evidence of heteroscedasticity and also autoregressive conditional heteroscedasticity is not present in short-run model.

Journal : Journal of European Economy Volume : 10 Year : 2011 Issue : Special Issue
Pages : 160-178 City : Edition : Editors :
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