Testing the neutrality of money, labor, and capital in Pakistan's agriculture sector

Waleed Mulk (), Shakil Ahmad (), Waqar Younas () and Syed Yawar Ali ()

Asian Journal of Economics and Empirical Research, 2024, vol. 11, issue 2, 125-133

Abstract: This study investigates the neutrality of money in Pakistan's agriculture sector by analyzing semi-annual data from 1991S1 to 2019S2. We employ the impulse response function, variance decomposition, Johansen cointegration, VECM, and the Granger causality test. The Johansen cointegration approach demonstrates a continuous relationship between the variables over time. The Granger causality test indicates no short-term causal relationship between agricultural productivity and the broad money supply. On the other hand, agricultural production has a short-term causal relationship with inflation and capital. Long-term outcomes corroborate the empirical findings of the cointegration test, suggesting the existence of a cointegration connection. The impulse-response and variance decomposition tests indicate that the broad money supply has a statistically significant positive effect on short- and long-term agricultural productivity. On the other hand, inflation has both short-term and long-term detrimental effects on agricultural productivity. Meanwhile, short-term and long-term labor and capital shocks symmetrically affect agricultural productivity. Consequently, our results refute the long-term money neutrality hypothesis. The results of this paper will assist policymakers and researchers in gaining a more comprehensive understanding of the impact of inflation, labor, capital, and the broad money supply on Pakistan's emerging economy.

Keywords: Agricultural; Capital shocks; Labor; Pakistan; Money supply; VECM. (search for similar items in EconPapers)
Date: 2024
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