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ROLE OF AGRICULTURE IN THE ECONOMIC DEVELOPMENT

OFPAKISTAN
Introduction
Agriculture is of immense importance for Pakistan. At the
time of independence Pakistan was primarily agriculture
based country. But as time progressed Pakistan
turned
into
more
diversifi ed
country
as
industrialization took hold. But development of
industriesh a d n o t e l i m i n a t e d t h e e x i s t e n c e o f
a g r i c u l t u re i n Pa k i s t a n a l t h o u g h t h e s h a re o f
a g r i c u l t u re h a d d e c re a s e d s i g n i fi c a n t l y s i n c e i t s
b i r t h . T h e ro l e o f a g r i cu l t u re i n t h e economic
development of Pakistan cannot be denied and Pakistan is
still characterized as an agricultural country. In the
subsequent
assignment
I will
be
discussing
the
contribution of agriculture in the economic development of
Pakistan. The most important and crucial aim of the
underdeveloped countries is rapid economic growth and
development and exports are generally perceived as an
engine for economic growth.
The desire for rapid
economic growth in underdeveloped countries is attained
through more trade. There is no shortage of empirical and
theoretical studies regarding the role of exports in raising
the economic growth and development. The classical
economists like Adam Smith and David Ricardo have
argued that international trade is main source of economic
growth and more economic gain is attained from
specialization. According to the export led growth
hypothesis, exports are the major source of economic
growth, has many theoretical justifications. First, in
Keynesian theory more exports generate more income
growth through foreign exchange multiplier in the short
run. Second, Export raises more foreign exchange which is
used to purchase manufactured goods, capital goods and
technology. These things contribute to economic growth.

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Third, exports indirectly promote growth via increased

competition,
economies
of
scale,
technological
development, and increased capacity utilization. Fourth,
many
positive
externalities
like
more
efficient
management or reduction of organizational inefficiencies,
better production techniques, positive learning from
foreign rivals and technical expertise about product design
are accrued due to more exports, lead to economic
growth. Pakistan is considered the 27th largest economy
of the world because of more purchasing power albeit an
underdeveloped country. The mainstay of Pakistans
economy is agriculture sector. Pakistans major exports
comprises on agricultural produce like wheat, rice, cotton,
and other main crops. According to economic survey of
Pakistan (2009 10), there exhibits a mixed picture of a
comparative analysis of product wise shares in 134 world
exports and Pakistans exports. Pakistans major exports
categories
remained
textile
manufactures,
other
manufactures and food having shares of 51 percent, 24
percent and 15 percent respectively during the year 2009
whereas the worlds exports during the year 2008 are
concentrated in manufactures, machinery, transport
equipment, fuels and mining products with the share of 67
percent, 34 percent, 23 percent and 18 percent
respectively. There is sizeable difference between worlds
demand pattern and Pakistans exporting items. This
divergent trend indicates that structural rigidities are
present in the export hage of the country. The overall
trend in agricultural exports performance has remained
positive during the year 2010 11. The textile sector and
food group have contributed 61.8 percent and 18.1
percent respectively to overall exports.

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REVIEW OF LITRATURE
A huge body of literature is available on the role of
agriculture in economic growth. During the last two
decades, a bulk of empirical research has been conducted
to explore the effects of exports on economic growth or
the export led growth hypothesis. These studies have used
either time series data or cross sectional data with
divergent conclusions. The earlier studies e. g Chenery
and Strout (1966); Michaely (1977); Balassa (1978); Heller
and Porter; (1978); Tyler (1891); and Kormendi & Mequire
(1985) analyzed the relationship between economic
growth and exports by using simple correlation coefficient
technique and concluded that growth of exports and
economic growth were highly positive correlated. The
second group of studies like Voivades (1973); Feder
(1983); Balassa (1985); Ram (1987); Sprout and Weaver
(1993); and Ukpolo (1994) used regression techniques to
examine the relationship between export growth and
economic growth, considering the neo classical growth
accounting equation. They found a positive and highly
significant value of the coefficient of growth of export
variable.
The third group of researchers like Jung and Marshall
(1985); Darrat (1987); Chow (1987); Kunst and Marin
(1989); Sung-Shen et al. (1990); Bahmani-Oskooee et al.

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(1991); Ahmad and Kwan (1991); Serletis (1992); Khan

and Saqib (1993); Dodaro (1993); Jin and Yu (1995) and
Holman & Graves (1995) examined the causality
relationship between growth of export and economic
growth using Granger causality test. The studies
concluded that there existed some evidence of causality
relationship between exports and growth. The main
problem with causality test is that it is not useful when the
original time series is not co integrated. Finally, the recent
studies1 conducted to investigate the impact of exports on
growth applying the technique of co integration and error
correction models. 1 See Kugler (1991), Serletis (1992),
Oxley (1993), Bahmani-Oskooee and Alse (1993), Dutt and
Ghosh (1994, 1996), Ghatak et al. (1997), Rahman and
Mustaga (1998) and Islam (1998). Contribution of
Agricultural Exports to Economic Growth
We have observed that mostly literature focused on the
total exports as the only source of growth, but
agricultures share to total exports is generally substantial
in under developed economies. It is very astonishing that
empirical research on the contribution of agricultural
exports to economic growth has been to some extent
ignored in the literature despite its role in the
development process being long recognized. But it is
argued by the various economists that rising agricultural
exports play a crucial role in economic growth. Johnston
and Mellor (1961) discussed the role of agriculture sector
in the process of economic development in many ways.
They emphasized that expanding agricultural exports were
the main source of rising incomes and increasing foreign
exchange earnings.
Levin and Raut (1997) explored the effect of primary
commodity and manufactured exports on economic
growth. The exports of primary commodity included both
agricultural products and other i.e metals and oil products.
The study concluded that manufacturing exports were the
main source of economic growth and the exports of
primary products had a negligible effect.
Ekanayake (1999) analyzed the causal relationship
between economic growth and export growth by using
error correction and co integration models. The author had
used the time series data of eight Asian developing
countries covering the period from 1960 to 1997. The

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results of the study concluded that there was a bi

directional causality between export growth and economic
growth in all the developing countries included in the
analysis except Malaysia. There existed strong evidence
for long run Granger causality in all countries.
Dawson (2005) studied the contribution of agricultural
exports to economic growth in least developed countries.
The author used the two theoretical models in his analysis.
The first model was based on agricultural production
function, including both agricultural and non agricultural
exports as inputs. The second model was dual economy
model i.e. agricultural and non agricultural where each
sector was sub divided into exports and non export sector.
Fixed and Random effects were estimated in each model
using a panel data of sixty two less developed countries
for the period 1974 1995. The study provided evidence
from less developed countries that supported theory of
export led growth. The results of the study highlighted the
role of agricultural exports in economic growth. The study
suggested that the export promotion policies should be
balanced.
Aurangzeb (2006) studied the relationship between
economic growth and exports in Pakistan based on the
analytical framework developed by (Feder, 1983). Auther
tested the applicability of the hypothesis that the
economic growth increased as exports expanded by using
time series from 1973 to 2005.The findings of the study
showed that export sector had significantly higher social
marginal productivities. Hence the study concluded that
an export oriented and outward looking approach was
needed for high rates of economic growth in Pakistan.
Kwa and Bassoume (2007) examined the linkage between
agricultural exports and sustainable development. The
study provided the case studies of different countries that
were involved in agricultural exports. Nadeem (2007)
provided the empirical analysis of the dynamic influences
of economic reforms and liberalization of trade policy on
the performance of agricultural exports in Pakistan. The
author examined the effect of both domestic supply side
factors and external demand on the performance of
agricultural exports. The major finding of the study was
that export diversification and trade openness contributed
more in agriculture exports performance. The results of

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the study suggested that agricultural exports performance

is more elastic to change in domestic factors.
Sanjuan and Dawson (2010) estimated the contribution of
agriculture exports to economic growth in under
developed countries. They estimated the relationship
between Gross Domestic Product and agrarian and non
agrarian exports. Panel co integration technique was used
in analyzing the data set of 42 underdeveloped countries.
The results of the study indicated that there existed long
run relationship and the agriculture export elasticity of
GDP was 0.07. The non agriculture export elasticity of GDP
was 0.13. Based on the empirical results, the study
suggested that the poor countries should adopt balanced
export promotion policies but the rich countries might
attain high economic growth from non agricultural exports.

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DISCUSSION
1. Increasing the GDP of the economy
Agriculture has a great contribution towa
rd s t h e G D P o f Pa k i s t a n . E c o n o m i c develop
m en t t a ke s p l a c e w h en t h e G D P o f a c o u n t r y
i n c r e a s e s . A t t h e t i m e o f independence agriculture
had the largest contribution towards the GDP of Pakistan.
But with the passage of time service sector became
the largest contributor of GDP and now agriculture has
the third largest share in the GDP of Pakistan.
According to World Bank In the year 2007, 20% of the
GDP of Pakistan came from the agriculture sector of
the economy. Livestock and fisheries are an important
source of employment as well as they also consist of the
exports of the country and help in increasing the GDP of
the country. Livestock accounts for 40 percent of the
agricultural sector and 9 percent of the total GDP.
Pakistan ranks fifth in the Muslim World and twentieth
worldwide in farm output. It is the world's fifth largest milk
producer. The country is the 5th largest producer of milk in
the world. This implies that agriculture is the back bone of
Pakistans economy and has integral role in the economic
development of the country.
2. Source of Employment
Agriculture industry is the major source of employment in
Pakistan. As more than half of the population of Pakistan
lives in rural areas. In 2007-08 Development Report of
UNDP6 5 % o f t h e to t a l p o p u l a t i o n o f Pa k i s t a n
l i v e d i n r u r a l a re a s i n 2 0 0 5 . I n r u r a l a re a s
agriculture is the sole means of their subsistence
and
employment.
According
to
theE c o n o m i c s u r v e y o f P a k i s t a n a g r i c u l t u r e r
e m a i n e d t o b e t h e d o m i n a n t s o u r c e o f employ
ment.43.61% of the total employment is provided by
agriculture in the FY 2006-07. As a developing country
consistent employment is of huge importance for the
country and directly and indirectly agriculture is the
biggest source of employment in the country.

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Employment leads towards increased GDP of

Pakistan and higher per capita income of people. High
per capita income results in improved standard of living of
the people which means more access to basic needs,
better health facilities, quality education etc, which are all
the signs of economic development. In this way
employment as a result of agricultural activity is adding
momentum to the economic development of Pakistan.
3. Increasing the Tax Revenue of the Government
Economic development is one of the prime
re s p o n s i b i l i t i e s o f a n y g o v e rn m e n t . T h e higher
the government collects tax revenue, the greater the
money
it
will
have
to
spendo n d e v e l o p m e n t a l p ro j e c t s . A g r i c u l t u re h e l
p s t h e g o v e rn m e n t b y i n c re a s i n g i t s t a x re v e n u e.
A s a g r i c u l t u re e m p l o y s 4 3 . 6 1 % o f t h e Pa k i s t a n s
l a b o r f o rc e a n d h a s 2 0 % contribution to towards the
GDP of the country this increases the per capita income of
the country and as per capita income increases
governments collection of tax revenue from i n d i v i d u a l s
a l s o i n c re a s e s . A l s o a s a g r i c u l t u re p ro v i d e s r a w
material
to
many
of
t h e i m p o r t a n t i n d u s t r i e s o f Pa k i s t a n , t h e re f o re , a
s a g r i c u l t u re ex p a n d e d i n th e c o u n t r y ,
i n d u s t r i a l a c t i v i ty to o to o k h o l d . E x p a n s i o n i n i n
d u s t r i a l s e c t o r a l s o l e a d s t o w a rd s i n c re a s e d t a x
re v e n u e f o r t h e g o v e rn m e n t f ro m t h e i n d u s t r i a l
s e c t o r. I n t h i s w a y th e agriculture has a signifi cant
role in increasing the tax revenue of the government.
The Government of Pakistan used this tax revenue to
bring
in
structural
changes
into
thec o u n t r y b y i n v e s t i n g i n i t s i n s t i t u t i o n s i n
o r d e r t o m a k e t h e m m o r e e ffi c i e n t , b y expandi
ng the span of education with in the country and many
more.
4. Sustaining the Population
The population of Pakistan is increasing at the rate
of almost 2% per year according to Human
Development Report (2007-08) of UNDP. Pakistan is

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the sixth most populous country of the world while

second most populous country in the Muslim world
according to Food and Agriculture Organization (FAO) of
United States. In order to sustain such a massive
population agriculture is playing a key role. Agriculture is
providing food to this e v e r i n c re a s i n g p o p u l a t i o n .
Wheat is the most consumed food item of
Pa k i s t a n a n d fortunately it is the most cultivated
crop of Pakistan. Imagine what if Pakistan is not an
agricultural country. Then to sustain a population of
almost 158.1 million the country w o u l d h a v e to
i m p o r t a l l t h e f o o d i t e m s c re a t i n g a f u r th e r
d e fi c i t
in
its
balance
o f p a y m e n t s a n d i n c re a s i n g th e c o u n t r y s d e b ts
c a u s i n g t h e e c o n o m i c g ro w th o f t h i s d e v e l o p i n g
country to slow down. Thus agriculture is pla
y i n g a d u a l r o l e i n t h e development of Pakistan
by providing food to its massive population and
supporting economic growth by reducing imports of food
items.
5. Contribution towards Exports
Major exports of Pakistan consist of agriculture items like
wheat, rice, cotton. According to FAO Pakistan exports
rice, cotton, fi sh, fruits, and vegetables. In 2005-06
the major share of Pakistan exports went to 9 countries,
account for 55.9% of total exports. 62.6%of Pakistans
total exports are Agriculture Commodities and
Textiles Products, 33% of which are Raw or Low value
added products.
Agriculture is helping the country to earn foreign
exchange through exports. Foreign exchange, in turn,
helps Pakistan to import t h o s e i t e m s w h i c h e i t h er
i t c a n n o t p ro d u c e i n t h e d o m e s t i c m a r ke t o r
p ro d u c e s
them
expensively
than other
countries. Through foreign exchange Pakistan import
s high-techequipments
and
capital
intensive
machineries and raw material for its industries like
industrial machinery, computer and computer parts etc.
Foreign exchange through export of agriculture items
helps the central bank to stabilize its currency and
reducing debt burden of Pakistan.

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6. Raw material for Industrial Sector

I n d u s t r i e s a re o f m a j o r i m p o r ta n c e i n th e e c o n o
m i c d e v e l o p m e n t o f a n y co u n tr y. Agriculture
is
helping many industries in Pakistan by providing raw
material to these i n d u s t r i e s. C o t to n i s a m a j o r
c ro p o f Pa k i s t a n w h i ch i s a l s o a n i m p o r ta n t
ex p o r t o f Pakistan and raw material of textile
industry. Textile industry is signifi cant and world
famous industry of Pakistan. Likewise sugar industry uses
sugar cane as raw material and sugar cane is also among
one of the important crops of Pakistan. Sports goods of
Pakistan are famous world wide. They are major exports of
Pakistan. Raw material for these sports goods is obtained
from the skins of live stock which is also a part of
agricultural
activity.L i v e s t o c k i s a l s o u s e d i n t h e m a n u f a c t
u r i n g o f l e a t h e r , w h i c h i s a g a i n o n e o f t h e im
p o r t a n t ex p o r t s o f Pa k i s t a n . T h e s e i n d u s t r i e s h a
v e i n n u m e r a b l e b e n e fi t s to th e economy of Pakistan.
They provide employment to the pool of the labor, they
add up to the exports of Pakistan, they bring in new
technology with in the country which not only increases
the quantity but also the quality of output and many
more benefi ts. All these benefits of industrialization are
largely derived from agriculture sector of Pakistan which
accelerates the economic development of the country.
7. Development of Rural Sector and Improving the
Standard of Living
A prerequisite for development with in the country is
the development of rural sector. Almost 65% of
Pakistans population lives in the rural sector. The progress
of rural areas is indispensable for the development of
Pakistans
economy.
Agriculture
had
been
a
m i l e s t o n e t o w a rd s t h e a d v a n c e m e n t o f th e r u r a l
s e c t o r o f Pa k i s t a n . I t i s n o t o n l y t h e means of
subsistence for the villagers but is also the biggest
source of employment for them. As agriculture
expanded in rural areas their development took rootsroads started to develop and rail tracks were laid down in

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rural
areas
to
make
transportation
agricultural p ro d u c t s e ffi c i e n t to th e d o m e s t i c a n d
f o re i g n m a r ke t a n d t o t h e i n d u s tr i e s . A l s o electric
ity became available. Also as agriculture provided
income to the rural people their expenditure on
education and health increased. According to the report,
the growth originating in agriculture is four times more
effective in reducing poverty than the growth coming from
non-agriculture sectors. The World Development Report
2008 recommends that the growth originating in
agriculture is four times more effective in reducing poverty
than the growth coming from non-agriculture sectors. It
further says that in the emerging countries, the
agricultural agenda should focus on reducing the
disparity between rural and urban incomes and
raising the incomes of the rural poor. Thus
agriculture helps in reducing the income inequality
between rural and urban areas of Pakistan. All this
lead towards higher standard of living of the
villagers, signifying the growth of the rural as well as
that of the whole country.
8. Development of Banking Sector
Agriculture has also contributed largely in the
development
of
banking
sector.
As
theg o v e rn m e n t s re a l i z e d t h e i m m e n s e i m p o r ta n c
e o f a g r i c u l t u re f o r th e e c o n o m y o f Pakistan, they
continually strived to bring in more financial assistance to
the farmers for rapid development in the agricultural
sector resulting into expanding banking sector.
C o m m e rc i a l b a n k s o p e n e d u p t h e i r b r a n ch e s i n
t h e r u r a l s e c t o r to a s s i s t f a rm e r s b y providing
them with loans on feasible terms. Increased significance
of
agriculture
for
thee c o n o m y h a d l e d to w a rd s s p e c i a l i z a t i o n i n th e
b a n k i n g s e c t o r e. g . t h e c re a t i o n o f Agriculture
Development Bank of Pakistan (ADBP) which is now
converted to Zarai Taraqiati Bank Limited (ZTBL).
ZTBL is being established with the aim to uplift the
agriculture and rural sector by raising farm
productivity, streamlining the institutional c re d i t
a n d i n c re a s i n g i n c o m e
g e n e r a t i n g c a p a c i ty o f

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t h e f a rm i n g c o m m u n i t y. T h i s
specialization
in
banking sector assists the development of agriculture
sector of Pakistan. Network of commercial banks indicate
the development of any country. They strengthen the
financial system of a country and makes flow of funds
convenient in an economy by taking money from those
who have money in excess (depositors) and
providing money ( l o a n s ) t o th o s e w h o h a v e a
s h o r t a g e o f m o n e y ( b o rro w er s ) . W h e n b a n k i n g
s y s t e m operates effi ciently on a large scale
potential entrepreneurs can avail money easily
for starting up their business, thus accelerating the
economic development. Banking system is considered to
be the back bone for the economy of Pakistan- the largest
share in GDP of 54% in 2007 as per World Bank is
made
by
the
service
sector
which
also
includes banking, and agriculture has contributed a
lot to the development of banking sector by attracting
large number of banks in rural areas.
9. Infrastructural Development
Infrastructure is a fuel to economic development. Well
developed infrastructure assures quick transportation of
goods and
services
(which
may include raw
material or
fi nished
g o o d s ) a n d p ro v i d e s f a c i l i t i e s l i ke e l e c t r i c i t y e t c
f o r s m o o t h p ro d u c t i o n p ro c e s s. A s a g r i c u l t u r e d
e v e l o p e d i n Pa k i s t a n a n d a s i t s t a r t s p ro v i d i
n g r a w m a t e r i a l t o s o m e industries and as the
demand of agricultural products soared in the domestic
market, the development of infrastructure in those
areas
took
hold.
In
order
to
make
distributions y s t e m m o re e ffi c i e n t a n d t o f a c i l i t a t e
t h e h i g h p ro d u c t i o n o f a g r i c u l tu r a l p ro d u c t s infras
tructure started to develop more rapidly. Like the
province of Punjab is the most populated province of
Pakistan and agriculture is its biggest source of
employment. It is also one of the most industrialized
province. Faisalabad, a city of Punjab, is the hub
of textile industry of Pakistan. Because of large scale
practice of agriculture in Punjab, it is one of the most
developed provinces in terms of infrastructure. As

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agriculture expands it brings with it infrastructural

development which helps in the economic prosperity of
the country. The most developed areas of Pakistan are
those
that
have
a
sound
infrastructure.
B y i n i t i a t i n g i n f r a s t r u c t u re d e v e l o p m e n t a g r i c u l t
u re h a d p l a y e d a m a j o r ro l e i n th e
economic
development of Pakistan. I n t h e s e m a n i f o l d w a y s
a g r i c u l t u re h a d c o n t r i b u t e d i n t h e e c o n o m i c
d e v e l o p m e n t o f Pakistan. In order to further
increase the development of the economy the
government should introduce policies which increase
the effi ciency of agriculture. E.g. government should
introduce modern means of production through the
initiation of technology in the agriculture sector. The
government should also revise land reforms as small lands
are not as productive as the large ones and should also
increase
the
ownership
of
land
to
farmersa n d m u s t t a ke s t e p s t o e l i m i n a t e f e u d a l i s
m . E ff e c t i v e m e a s u re s f o r a g r i c u l t u re w i l l definitel
y add up to the development of the weak economy of
Pakistan.

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