Agricultural Output, Inflation Rate, Fiscal Deficit and National Savings Nexus: Evidence from Pakistan

Abstract

The goal of the article is to investigate the effect of agricultural output, fiscal deficit and inflation rate on national savings in Pakistan for the period of 1973-2020. To address the objective, autoregressive distributed lag (ARDL) model and error correction model (ECM) are applied for co-integration and short-run dynamics respectively. The outcomes of the study endorse that agricultural output and rate of interest have a significant positive impact on national savings whereas inflation rate and fiscal deficit negatively affect national savings both in the short and long run. The coefficient’ sign of the lagged error correction term helps us to conclude that the system has potential to come back to equilibrium position with 69 % adjustment annually. It is recommended that effort should be made to improve the productivity of the agricultural sector and curtail deficit and inflation rate to increase savings in the country.

Keywords

• National savings
• Agricultural output
• Fiscal deficit
• Inflation Rate

References

1. Abdelkhalek, T., Arestoff, F., de Freitas, N. E. M., & Mage, S. (2010). A Micro econometric Analysis of Household Savings Determinants in Morocco African Review of Money Finance and Banking, 7-27.
2. Agrawal, P., Sahoo, P and , Dash, R. K. (2009). “Savings behaviour in South Asia”. Journal of Policy Modeling,31, 208-224.
3. Ahmad, F. (2015). Determinants of Savings Behavior in Pakistan: Long Run-Short Run Association and Causality. Timisoara Journal of Economics and Business, 8(1), 103-136.
4. Ahmad, K., & Mahmood, H. (2013). Macroeconomic Determinants of National Savings Revisited: A Small Open Economy of Pakistan. Journal of World Applied Sciences 21(1), 49-57.
5. Akpan, S. B., Udoh, E. J., &Aya, E. A. (2011). Analysis of Savings Determinants among Agro-Based Firm Workers in Nigeria: A Simultaneous Equation Approach. Research Paper on Humanities and Social Sciences, 1(3), 1-12.
6. Akram, N., &Akram, M. I. (2015). Savings Behavior in Muslim and Non-Muslim Countries in Context to the Interest Rate. Pakistan Journal of Applied Economics, 25(2), 161-177.
7. Akram, N., &Akram, M. I. (2016). Macro and Socioeconomic Determinants of Savings in Pakistan. Pakistan Business Review, 18(2), 325-342.
8. Aleemi, A. R., Ahmed, S., & Tariq, M. (2015). The Determinants of Savings: Empirical Evidence from Pakistan. International Journal of Management Sciences and Business Research, 4(1).

9. Ali, A. (2016). "Low Saving and Investment Trap". Retrieved from http://www.sbp.org.pk/publications/staff-notes/SavingInvestmentStaffNote-Jan-16.pdf on 01/11/2018.
10. Ando, A., & Modigliani, F. (1963). The" Life Cycle" Hypothesis of Saving: Aggregate Implications and Tests, The American Economic Review, 53(1), 55-84.
11. Asghar, N., & Nadeem, M. (2016). An Empirical Investigation of Saving Behavior In Pakistan. Pakistan Economic and Social Review, 54(1), 55.
12. Badar, H., Ghafoor, A. & Adeel, A. (2017). "Agro-Industries in Pakistan". Publication at: Https://Www.Academia.Edu/34995751/Agro-Industries_In_Pakistan, 255-269.
13. Box, G. E., Jenkins, G. M.(1970). Time Series Analysis: Forecasting and Control Holden-Day San Francisco. Box time Series Analysis: Forecasting and Control Holden Day1970.
14. Carroll, C. D. (2006). Consumption and Saving: Theory and Evidence. NBER Working Paper, National Bureau of Economic Research, Cambridge, MA.
15. Chaudhry, I. S., Riaz, U., Farooq, F., &Zulfiqar, S. (2014). The Monetary and Fiscal Determinants of National Savings in Pakistan: An Empirical Evidence from ARDL Approach to Co-Integration. Pakistan Journal of Commerce and Social Sciences (PJCSS),8(2), 521-539.
16. Chaudhry, I. S., Faridi, M.Z., Abbas, M., and Bashir, F. (2010). Short Run and Long Run Saving Behavior in Pakistan: An Empirical Investigation. Journal of Money, Investment and Banking, 16, 57-66
17. Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the American Statistical Association, 74(366a), 427-431.
18. Engle, R. F., &Granger, C. W. (1987). Co-Integration and Error Correction: Representation, Estimation, and Testing. Econometrica: Journal of the Econometric Society, 251-276.
19. Fuller, W. A. (1976). Introduction to Statistical Time Series, New York: John Wiley.
20. Faridi, M. Z., &Arif, A. (2012). Globalization and Saving Behavior of Pakistan: An Empirical Analysis. Pakistan Journal of Social Sciences, 79-91
21. Government of Pakistan (2017-18), Pakistan Economic Survey, Ministry of Finance, Islamabad
22. Horioka, C. Y., & Terada-Hagiwara, A. (2012). The determinants and long-term projections of saving rates in Developing Asia. Japan and the World Economy, 24(2), 128-137.
23. Husain, A. M. (1996). Private Saving and its Determinants: A Case of Pakistan. The Pakistan Development Review, 35(1), 49–70
24. Idiaye, C. O., Bolaji-Olatuji, K. A., Ojebode, M. O., Obi-Egbedi, O., &Okoruwa, V. O. (2014). Government Policy, Agricultural Output and National Savings in Nigeria. Journal of Economics and Sustainable Development, 2222-1700.
25. Jilani, S., Sheikh, S. A., Cheema, F. E., & Shaik, A. U. H. (2013). Determinants of National Savings in Pakistan: An Exploratory Study. Asian Social Science, 9(5), 254.
26. Johansen, S. (1988). Statistical analysis of co-integration vectors. Journal of economic dynamics and control, 12(2-3), 231-254.
27. Johansen, S. (1991). Estimation and hypothesis testing of co-integration vectors in Gaussian vector autoregressive models. Econometrica: journal of the Econometric Society, 1551-1580
28. Johansen, S., &Juselius, K. (1990). Maximum likelihood estimation and inference on co-integration—with applications to the demand for money. Oxford Bulletin of Economics and statistics, 52(2), 169-210.
29. Kostakis, I. (2013). The determinants of households’ savings during recession: Evidence from Greece. Available at SSRN 2323559.
30. Kalim, R. & Hassan, M., S. (2016). A Sluggish Trend of National Savings and Its Causes: The Case Of Pakistan. 2016 Cambridge Business & Economics Conference, PP: 1-29.
31. Kazmi, A. A., &Bilquees, F. (1993). National Savings Rates of India and Pakistan: A Macroeconometric Analysis [with Comments]. The Pakistan Development Review, 32(4), 1313-1324.
32. Khan, T., Gill, A. R., &Haneef, S. (2013). Determinants of Private Saving: A Case of Pakistan. Asian Journal of Economic Modelling, 1(1), 1-7.
33. Khan, A. H., Khalid, U., & Shahnaz, L. (2016). Determinants of Household Savings in Pakistan: Evidence from Micro Data. Journal of Business & Economics, 8(2), 171.
34. Nasir, S., Khalid, M., & Mahmood, A. (2004). Saving-investment behaviour in Pakistan: An empirical investigation [with Comments]. The Pakistan Development Review, 665-682.
35. Nagawa, V., Wasswa, F., & Bbaale, E. (2020). Determinants of gross domestic savings in Uganda: an autoregressive distributed lag (ARDL) approach to co-integration. Journal of Economic Structures, 9, 1-19.
36. Onwuasoeze, M. I. &Kirori, G. N. (2016). "Analyzing the Drterminants of Private Savings in Kenya over the Period 1993-2013. European Journal of Business, Economics and Accountancy, 4(2), 67-80.
37. Ogren, A. (2018). Determinants behind Household Saving Behavior:-Empirical analysis on 15 OECD countries.
38. Pesaran, M. H., & Shin, Y. (1998). An autoregressive distributed-lag modelling approach to co-integration analysis. Econometric Society Monographs, 31, 371-413.
39. Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326
40. Phillips, P. C., & Hansen, B. E. (1990). Statistical inference in instrumental variables regression with I (1) processes. The Review of Economic Studies, 57(1), 99-125.
41. Phillips, P. C., &Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335-346.
42. Samantaraya, A., & Patra, S. K. (2014). Determinants of household savings in India: An empirical analysis using ARDL approach. Economics Research International, 2014.
43. Saqib, S., Panazi, S., Ullah, H., Ullah, U., & Usman, H. (2016). Determinants of Household Savings in Rural and Urban Areas: The Case of Chitral District, Pakistan. International journal of academic research in business and social sciences, 6(3), 54-64.
44. Sargan, J. D. (1961). The maximum likelihood estimation of economic relationships with autoregressive residuals. Econometrica: Journal of the Econometric Society, 414-426.
45. Shah, S., Babar, M. N. K., uz Zaman, K., Rehman, A., Shah, M., & Muhammad, A. Determinants of Saving Behavior in Pakistan.
46. Soren, J. (1995). Likelihood-based inference in co-integrated vector autoregressive models. OUP Catalogue
47. Shaikh, S. A., & Sheikh, E. A. (2013). Macroeconomic Determinants of Savings in Pakistan. Global Management Journal for Academic & Corporate Studies, (1), 151.
48. Shrestha, M. B., & Chowdhury, K. (2005). ARDL modelling approach to testing the financial liberalization hypothesis.
49. Sajid, G. M., & Sarfraz, M. (2008). Savings and economic growth in Pakistan: An issue of causality. Pakistan Economic and Social Review, 17-36.
50. Soharwardi, M. A., Khan, A. S., &Sheran, M. K. (2015). Determinants of household savings. A case study of Yazman-Pakistan. International Journal of Scientific and Engineering, 5(12), 1624-1630.
51. Tesha, D. M. (2013). Determinants of private saving in Tanzania. MA, University of Nairobi.
52. Vincelette, G. A. (2006). Determinants of saving in Pakistan. The World Bank.
53. Wieliczko, B., Kurdyś-Kujawska, A., & Sompolska-Rzechuła, A. (2020). Savings of Small Farms: Their Magnitude, Determinants and Role in Sustainable Development. Example of Poland. Agriculture, 10(11), 525.
54. Yasmeen, K., Abbasian, E., & Hussain, T. (2011). Impact of educated farmer on Agricultural Product. Journal of Public Administration and Governance, 1(2), 158-164.