Relationship between Sectors Shares and Economic Growth in Pakistan: A Time Series Modeling Approach

Abstract

The objective of this study is to examine a relationship among agriculture, manufacturing, services sectors, and Gross Domestic Product (GDP) growth in Pakistan. In order to explore this relationship, Time Series data has been taken for the period of 1989 to 2012. This study employed the Econometrics technique to investigte a relationship between sector shares and economic growth. In order to select the best technique, Vector Error Correction Model (VECM) is applied. Wald Test is used to check the short run Causality among variables (i.e., agriculture, manufacturing, services, and GDP). VECM confirmed that there is a long run Causality from agriculture, manufacturing, and services sectors to GDP in Pakistan. There is a short run Causality from manufacturing and services sectors to GDP and same applies for GDP to agriculture and manufacturing sectors. But there is uni-directional Causality from manufacturing sector to GDP and from services sector to agriculture sector. Findings of the study exhibit that GDP will be positively influenced due to increase in agricultural and manufacturing, whereas services sector does not influence GDP but GDP influences services sector in Pakistan.