Pak. j. life soc. Sci. (2011), 9(2): Pakistan Journal of Life and Social Sciences

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1 Pak. j. life soc. Sci. (2011), 9(2): Pakisan Journal of Life and Social Sciences Impac of Social and Physical Infrasrucure on Agriculural Produciviy in Punjab, Pakisan-A Producion Funcion Approach Nasir Nadeem*, Khalid Mushaq 1 and Mohammad Ishaq Javed 2 Direcorae of Agriculure Engineering, Mulan, Pakisan 1 Deparmen of Agriculure Economics. Universiy of Agriculure, Faisalabad, Pakisan 2 Agriculure Officer (Exension), Sangla Hill, Nankana Sahib, Pakisan Absrac In agriculural based counries, public invesmen on rural infrasrucure no only increases agriculural produciviy bu also reduces povery. This sudy aemped o quanify he impac of public infrasrucure (boh social and physical) invesmen on oal facor produciviy (TFP) in Punjab, Pakisan using he mulivariae Cobb- Douglas producion funcion for he period The resuls showed ha public invesmen on physical infrasrucure (rural roads, village elecrificaion and irrigaion) and social infrasrucure (rural educaion and rural healh) have conribued significanly and posiively o TFP. The sudy suggesed ha more resources should be divered owards he developmen of physical and social infrasrucure ha will enhance he agriculural produciviy as well as reduce he rural povery. Keywords: Social infrasrucure, Physical infrasrucure, TFP, Cobb-Douglas Inroducion In developing counries like Pakisan, public invesmen is one of he sharpes insrumens hrough which he governmen can achieve is developmen objecives. Among differen invesmens, infrasrucure invesmen boh social infrasrucure (educaion and healh) and physical infrasrucure (roads, elecrificaion, research and developmen, irrigaion, marke developmen ec) plays a vial role in enhancing agriculural produciviy and reducing povery in a counry wherein majoriy of he populaion direcly or indirecly depends on agriculure. In Pakisan, where srucural ransformaion process is in progress, agriculure secor is sill he single larges secor of he economy wih deep influence on socio-economic se up. Empirical sudies of Haggblade e al. (1991) and Fan e al. (2000) have concluded ha he muliplier effec *Corresponding Auhor: Nasir Nadeem Direcorae of Agriculure Engineering, Mulan, Pakisan nasir_nadeem2001@yahoo.com 153 of agriculural growh is usually greaer han wo. According o Mellor (1976), he muliplier effec appears more when agriculural growh is driven on accoun of produciviy increased. Growh in boh he radable and non-radable secors of agriculure simulaes srong growh in oher secors of he economy via muliplier effecs. Hence, in fuure, he growh sraegy for mos agriculure-based economies has o be affixed on geing agriculure moving (World Bank, 2008). Agriculure in Pakisan is a source of he livelihood of almos 45 percen of he oal employed labour force in he counry. Presen conribuion of Agriculure owards Naional GDP sands a 20.9 percen. No sraegy of economic developmen can be successful wihou giving due imporance o his secor because i has srong forward and backward linkages paricularly wih he indusrial secor (GOP, 2011). The conribuion of Punjab agriculure secor is 28 percen o he provincial gross domesic produc and accouns for over 40 percen of oal employmen in he province. Punjab crop secor conribues abou 68 percen o oal food grains producion in he counry. The province is also a major conribuor owards counry s exporable surplus which usually comes from agriculure secor. Despie of hese facs, yield gaps are quie high in Punjab. The yield in Punjab of seleced crops is 50 o 83 percen lower han he highes averages aained in oher counries of he world. Closing he yield gaps hus offers significan prospecs for fuure agriculural growh in Punjab. There are number of reasons for he presence of large yield gaps in Punjab including low invesmens on research and exension, irrigaion, rural roads, educaion, healh and rural elecrificaion infrasrucure (GOPB, 2007). Therefore, in order o achieve he goals of overall economic uplif and povery reducion, susained growh rae in agriculure is essenial (Kiani e al., 2008). Various sudies have esimaed he relaionship beween produciviy and differen public secor invesmens variables. Shane e al. (1998) explained ha due o large number of producers and he dispersed naure of producion, public invesmens

2 Nadeem e al had been a very imporan source of produciviy growh for agriculure. They esimaed ha public agriculural research and developmen (R&D) and infrasrucure accoun for 75 percen of he growh in agriculural produciviy beween 1949 and Fan e al. (2000) explored ha in order o reduce rural povery; he Indian governmen should give highes prioriy o addiional invesmens in rural roads and agriculural research. According o hem hese ypes of invesmen have larger impac on produciviy growh and povery reducion han any oher public invesmen. They also revealed ha governmen spending on educaion has he hird larges marginal impac on rural povery and produciviy growh. Oher invesmens such as irrigaion, soil and waer conservaion, healh, and rural and communiy developmen has only modes impacs on growh and povery per addiional rupee spen. According o Fan e al. (2002) governmen spending on producion-enhancing invesmens, such as agriculural research and developmen (R&D), irrigaion, rural educaion, and infrasrucure (including roads, elecriciy, and elecommunicaions) all conribued o agriculural produciviy growh and reduce regional inequaliy and rural povery in China. They also found ha governmen expendiure on educaion has he larges impac on povery reducion and very high reurns o growh in agriculure and rural economy as a whole. Mamazakis (2003) calculaed a model of Greek agriculure s echnology and behavior by dual cos funcion approach by using he daa of The empirical esimaes indicae ha public infrasrucure invesmen provide significan reurns o agriculure and produciviy growh. Fan e al. (2004) illusraed ha despie Thailand s middle income saus, mos governmen invesmens such as agriculural R&D, irrigaion, rural educaion, and infrasrucure (including roads and elecriciy), has posiive marginal impacs on agriculural produciviy growh and rural povery reducion. Bloom e al. (2004) found ha life expecancy and schooling have a posiive and significan effec on GDP by using 2SLS echnique. Improvemens in healh increase oupu no only hrough labour produciviy, bu also hrough he Capial accumulaion. Sudy also revealed ha improvemen of one year in a populaion s life expecancy resuled ino an increase of 4% in oupu. Cole and Neumayer (2006) esimaed he impac of poor healh indicaors ha are paricularly problemaic in developing regions (malnuriion, malaria and waerborne diseases) and revealed ha impac of poor healh on TFP o be negaive, significan, and robus across a wide variey of specificaions. Malik (2006) explained ha if OLS is used hen here is no significan relaionship beween healh saus and economic growh. However, when 2SLS is used hen sudy finds highly significan effec of healh indicaors (infan moraliy rae, life expecancy rae and crude healh rae) on economic growh in India. Ashok and Balasubramanian (2006) examined he role of infrasrucure on oal facor produciviy in India. The resuls of he sudy clearly esablish ha he invesmens in rural infrasrucure like roads, irrigaion, rural markes, and rural lieracy increase he oal facor produciviy in Tamil Nadu agriculure. Limied empirical work is found in Pakisan as regard he relaionship beween agriculural produciviy and public invesmen. According o Rosegran and Evenson (1993) agriculural research, high yielding varieies (HYVs), lieracy, and share of irrigaion are he major sources of oal facor produciviy growh. Pasha e al. (2002) quanified he conribuion of differen facors o growh of oal facor produciviy boh for he individual secors and for he economy as a whole. They examined he role of differen facors in influencing he level of TFP of agriculure in Pakisan on a long-erm basis for he period of o They concluded ha human capial improvemen accouns for 1.6 o 1.8 percen annually in oal facor produciviy and TFP can be increased by invesing more in educaion, especially a he primary and he secondary level. Akram e al. (2009) invesigaed he impac of differen healh indicaors on Economic growh in Pakisan. They concluded ha impac of healh is only a long run phenomenon because no significan relaionship beween healh and economic growh was seen in he shor run. Kiani e al. (2008) evaluaed he impac of differen invesmens on oal facor produciviy in Punjab using Almon disribued lag model. The sudy concluded ha besides research expendiures, roads, number of racors, and ube wells showed posiive and significan impac on TFP in he crops subsecor. In Punjab, only few sudies have been done in he area of public spending in agriculural produciviy. However, here is lile or no quaniaive evidence of public spending on social (educaion and rural healh) and physical infrasrucure like village elecrificaion wih respec o heir impac on agriculural oal facor produciviy is seen in empirical lieraure. So in his regard, his will be a useful conribuion in he empirical lieraure and for he policy makers in fuure. The main objecive of his sudy was o examine he relaionship beween he public spending on physical infrasrucure and social infrasrucure and oal facor produciviy in he province because TFP is concepually superior measure o sudy he impac of infrasrucural variables, as i explains he 154

3 Impac of social and physical infrasrucure on agriculural produciviy growh in oupu which is no explained by he growh in he radiional inpus. Maerials and Mehods In order o analyze he relaionship beween invesmen variables and oal facor produciviy, we use Cobb- Douglas Producion funcion. k γ β j µ TFP = AW X j. e (1) j 1 In log form of our model would be as under: lntfp = lna+ lnw + β1 lnx1 + β2 lnx2 + βn lnx (2) n However, he linear form of our model would be n (3) ln TFP = ln A + ln W + β i ln X i + µ i = 1 Where TFP = is aggregae Toal Facor Produciviy of Punjab s crop and livesock sub-secors. X= represens invesmen variables of physical infrasrucure, social infrasrucure and agriculure. W= is a dummy variable represening weaher effec. Daa Daa sources and descripion is presened in Table 1. Daa on rural educaion, agriculure, irrigaion and rural healh includes boh developmen and non developmen expendiures while daa on rural roads comprises of only developmen expenses and daa on all variables excep village elecrificaion were aken from various copies of Annual Developmen Plans and Budge copies, Governmen of he Punjab, Pakisan. The daa on village elecrificaion are aken from various copies of Punjab Developmen Saisics. To make real, he daa has been deflaed by he GDP deflaor by aking as base year. Resuls and Discussion Summary saisics of he model showing mean and Sandard Deviaion of he variables is presened in Table 2. The mean of all he variables excep DM is found hovering around 5 while Sandard Deviaion of all he variables excep variable RHE (-5) is below 0.5. We esimaed he model (3) which is linear in logarihms and resuls are presened in Table 3. The signs of he coefficiens are according o a priori expecaions in he model. The resuls indicaed ha he coefficien of variable RHE (-5) is significan a 1% level of significance. The highes impac of he variable is observed a lag 5. Our resul also ge suppor from he resul of Akram e al. ( 2009 ) who concluded ha impac of healh is only a long run phenomenon. The value of coefficien illusraes ha a 1 percen increase in he invesmen on social infrasrucure, increases TFP by The resuls of his sudy are conforming o oher sudies e.g., Fan e al. (2002, 2004), Shakeri (2004) and Pasha e al. (2002). The calculaed elasiciy of he variable (RVRI) was 0.24 which is highly significan. Thus a 1 percen increase in he invesmen on physical infrasrucure such as rural roads, irrigaion and village elecrificaion increases TFP by 0.24 percen. This resul suppors oher sudies such as Leinbach (1983) who concluded ha rural road developmen conribued o higher produciviy. Binswanger e al. (1993) and Ashok and Balasubramanian (2006) found ha easier access o markes, echnology and beer roads raised farm and non-farm producion by providing accessibiliy o relevan inpus a lower cos. Fan e al. (2000) revealed a posiive and significan impac of rural infrasrucure invesmen on TFP. Moreover, he increasing use of echnology during Green Revoluion played an imporan role in boosing agriculural producion and produciviy in Pakisan and he province of Punjab. The assured irrigaion waer hrough insallaion of elecric ube wells and canals is one he essenial elemens in enhancing produciviy in he counry. Kiani e al. (2008) found a posiive and significan impac of ubewells on TFP in crop sub-secor in he province of Punjab, Pakisan, Shakeri (2004) concluded ha invesmen on rural infrasrucures, road, agriculure R&D, irrigaion, rural educaion, elecrificaion ec. are prior condiions of rural-agriculural secor developmen and Fan e al. (2002, 2004) also observed a posiive marginal impac of elecrificaion and oher invesmen variables on agriculural produciviy growh and rural povery reducion. The esimaed coefficien of agriculure (AGRI) variable is Hence, a 1 percen increase in invesmen on agriculure increases TFP by 0.21 percen. No sraegy of economic developmen can be successful wihou giving due imporance o his secor as i has forward and backward linkages paricularly wih he indusrial secor (GOP, 2011). Dummy variable which represens he weaher effec also disclose is significance effec on TFP. The Durbin-Wason (DW) saisics imply ha here is no serial correlaion in he model. Time series analysis ofen confrons a problem of mulicollineariy among regressors of a model. In case of high mulicollineariy, he auheniciy of resuls becomes less reliable. In order o check mulicollineariy differen crieria have been suggesed including Variance Inflaion Facor (VIF) and Eigenvalues (Gujrai, 2003). Table 4 presens he Collineariy Saisics among he independen variables of he model. The resuls of he able imply ha here exiss no problem of mulicollineariy. 155

4 Nadeem e al Table 1 Variables Descripion and Daa Sources Variables Descripion TFP Punjab s Toal Facor Produciviy which is esimaed by aking boh agriculure and livesock subsecors for he period of and has been aken from Nadeem e al. (2010). RHE Expendiure on rural healh and educaion. The expendiure daa on rural healh and rural educaion is no readily available from lieraure. However, i is esimaed from expendiures on primary educaion and expendiure on healh in he province on he basis of percenage share of rural populaion in he oal populaion of he Province of Punjab. The daa on daa on primary educaion and healh was obained from various issues of Annual Developmen Plans and budge copies. RVRI Expendiure on rural roads, irrigaion infrasrucure and number of village elecrified in he province. Daa on rural roads are available only for To derive expendiure on rural roads, daa for are exrapolaed on he basis of he percenage share of he rural roads in he oal provincial roads. Expendiure on rural roads is calculaed as per kilomeer expendiure muliplied by one fifh of he expendiure on oal rural road lengh ha is we assume ha cos per uni of rural roads is one fifh ha of urban roads. Daa on expendiure on irrigaion infrasrucure and village elecrified are colleced from various copies of Developmen Plans, Budge Copies and Punjab Developmen Saisics, Governmen of he Punjab. AGRI Aggregae expendiures on crop and livesock sub-secors in he Province of Punjab. The daa were colleced from boh annual developmen plans and budge copies of he province. DM Dummy variable o capure he influence of weaher, floods ec. DM akes he value of uniy for he years 1970, 1971, 1973, 1974, 1983, 1993, 2000, 2001, 2003, 2005 and zero oherwise. Noe: All variables excep DM are used as index variables in he model. Table 2 Summary Saisics of he Model Variables Mean Sd. Deviaion TFP RHE (-5) RVRI AGRI DM We esimae he model (3) which is linear in logarihms and resuls are presened in Table 3. The signs of he coefficiens are according o a priori expecaions in he model. Summary and Conclusions This sudy aemped o quanify he impac of public infrasrucure (boh social and physical) invesmen on oal facor produciviy (TFP) in Punjab, Pakisan using he mulivariae Cobb-Douglas producion funcion for he period The resuls showed ha, public invesmen on social infrasrucure, physical infrasrucure and agriculure have conribued significanly and posiively o oal facor produciviy. The ess of auocorrelaion and mulicollineariy also confirmed ha here was no problem of auocorrelaion and mulicollineariy in he model. According o World Bank (2008), he growh originaing in agriculure is four imes more effecive in reducing povery han he growh coming from non-agriculure secors. The resuls of he sudy sugges ha invesmen in boh social and physical infrasrucure will enhance agriculural produciviy in he province. The increase in agriculural Table 3 Regression Resuls of Public Invesmens on Toal Facor Produciviy in Punjab, Pakisan Variables Coefficiens Consan 1.84 (7.99)* [0.00] RHE (-5) 0.13 (4.78)* [0.00] RVRI 0.24 (5.10)* [0.00] AGRI 0.21 (4.46)* [0.00] DM (-1.99) ** [0.06] R-square Adjused R-square DW-Saisics 2.00 *, ** show significance a 1 and 5 percen, respecively; Values in parenhesis are -raios while values in Brackes are p-values Table 4 Collineariy Saisics of Public Invesmen Variables Variables Variance Inflaion Facor VIF) Eigenvalue RHE (-5) RVRI AGRI DM produciviy will furher reduce he rural povery by improving he socio-economic condiions of a large segmen of rural populaion which direcly or indirecly involved in agriculural relaed aciviies and would ensure food securiy. The resuls illusrae ha invesmen on physical infrasrucure has he larges impac on agriculural produciviy. Low 156

5 Impac of social and physical infrasrucure on agriculural produciviy invesmen on rural roads and irrigaion can be a major impedimen owards enhancing produciviy and improving he socio-economic condiions of he farmers due o weak linkages beween rural and urban markes, high ransporaion cos and non availabiliy of inpus a proper ime and shorage of irrigaion waer ec. Hence, he sudy suggesed ha more resources should be divered owards physical infrasrucure. However, he imporance of social infrasrucure can no be negleced. Primary educaion especially rural primary educaion may affec he produciviy hrough echnical efficiency of farming communiy. To he bes of our knowledge here exiss no sudy which has evaluaed he impac of rural healh invesmen on TFP in Punjab agriculure secor. The sudy also suggesed a due share of invesmen on rural healh in he province because mos of he rural populaion deprive of healh faciliies a heir door sep. Proper availabiliy of healh faciliies a village level will no only provide a sense of menal saisfacion bu also reduce heir expenses on healh and will save heir precious ime by aking a paien o he neares hospial in he ciy. References Akram N, IH Padda and M Khan, The long erm impac of healh on economic growh in Pakisan. Paper presened in 24 h AGM conference of he Pakisan Sociey of Developmen Economiss, Pakisan Insiue of Developmen Economics, Islamabad. March 31- April 02. Ashok KR, and R Balasubramanian, Role of infrasrucure in produciviy and diversificaion of agriculure. Final Draf Repor. Funded By Souh Asia Nework of Economic Research Insiues (SANEI) Pakisan Insiue of Developmen Economics, Islamabad, Pakisan. ec_3.pdf. Accessed on Binswanger HP, SR Khandler and MR Rosenzweig, How infrasrucure and financial insiuions affec agriculural oupu and invesmen in India, Journal of Developmen Economics 41: Bloom DE, D Canning and J Sevilla, The effec of healh on economic growh: A producion funcion approach. World Developmen, Cole MA and E Neumayer, The impac of poor healh on oal facor produciviy. Journal of Developmen Sudies, 42: Fan S, P Hazell and S Thora, Governmen spending, growh, and povery in rural India. American Journal of Agriculural Economics, 82: Fan S, L Zhang and X Zhang, Growh, inequaliy, and povery in rural China: The role of public invesmen, Research repor No.125. Inernaional Food Policy Research Insiue, Washingon, DC. Fan S, S Jisuchon and J Mehakunnavu, The imporance of public invesmen for reducing rural povery in middle income counries: The case of Thailand. DSGD Discussion Paper No.7, Inernaional Food Policy Research Insiue. GOP, Economic Survey of Pakisan Finance Division. Economic Advisor s Wing, Islamabad. GOPB, Punjab Economic Repor, Governmen of he Punjab, Lahore. Gujarai DN, Basic Economerics. 4 h ed. New York: McGraw-Hill Publishing Co. Haggblade S, J Hammer and P Hazell, Modeling agriculural growh mulipliers. American Journal of Agriculural Economics, 73: Kiani, A.K., M. Iqbal and T. Javed, Toal facor produciviy and agriculural research relaionship: Evidence from crops sub-secor of Pakisan s Punjab. European Journal of Scienific Research, 23: Leinbach TR, Transpor evaluaion in rural developmen: An Indonesian case sudy. Third World Planning Review, 5: Malik G, An examinaion of he relaionship beween healh and economic growh. Indian Council for Research on Inernaional Economic Relaions (ICRIER) Working Paper No Mamazakis EC, Public infrasrucure and produciviy growh in Greek agriculure. Journal of Agriculural Economics, 29: Mellor JW, The New Economics of Growh. New York: Cornell Universiy Press. Nadeem N, MS Javed, SA Adil and S Hassan, Esimaion of oal facor produciviy growh in agriculure secor in Punjab, Pakisan: Pakisan Journal of Agriculure Sciences, 47: 1-6. Pasha HA, AG Pasha and K. Hyder, The slow down of he growh of oal facor produciviy in Pakisan. Social Policy and Developmen Cenre SPDC, Karachi, Pakisan, Research Repor No. 44. Rosegran MW and RE Evenson, Agriculural produciviy growh in Pakisan and India: A comparaive analysis. Pakisan Developmen Review 32:

6 Nadeem e al Shakeri A, Agriculural secor posiion in rural developmen. Journal of Agriculural Economic and Developmen, 48: Shane M, T Roe and M Gopinah, US agriculural growh and produciviy: An economy wide perspecive. Marke and Trade Economics Division, Economic Research Service, US Deparmen of Agriculure, Washingon, DC. Agriculural Economic Repor no World Bank, World Developmen Repor 2008: Agriculure for Developmen. Washingon, DC