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Sectoral Contribution to Economic Development in India: A Time-Series Co-

Integration Analysis

Article in Journal of Asian Finance Economics and Business · September 2020

DOI: 10.13106/jafeb.2020.vol7.no9.191

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 Sandip SOLANKI, Krishna Murthy INUMULA, Asmita CHITNIS /
Journal of Asian Finance, Economics and Business Vol 7 No 9 (2020) 191–200 191

Print ISSN: 2288-4637 / Online ISSN 2288-4645

doi:10.13106/jafeb.2020.vol7.no9.191

Sectoral Contribution to Economic Development in India:

A Time-Series Co-Integration Analysis

Sandip SOLANKI1, Krishna Murthy INUMULA2, Asmita CHITNIS3

Received: July 03, 2020 Revised: July 19, 2020 Accepted: August 10, 2020

Abstract
This research paper examines the causal relationship between India’s economic growth and sectoral contribution to Gross Domestic Product
(GDP) and vice versa, in the short-run and long-run, over a 10 years time period. Johansen’s method of cointegration is used to study the
cointegration between the sectoral contributions to Indian GDP vis-à-vis India’s economic growth. Further, the route of interconnection
between economic growth and sectoral contribution is tested by using Vector Auto Regression (VAR) model. Special attention was given
for investigating impulse responses of economic growth depending on the innovations in sectoral contribution using time-series data from
1960 to 2015. This paper highlighted a dynamic co-relationship among industrial sector contribution and agricultural sector contribution
and economic development. In the long run, one percent change in industrial sector contribution causes an increase of 3.42 percent in the
economic growth and an increase of 1.12 percent in the primary sector contribution, while in the short run industrial and service sector
contributions showed significant impact on economic development and agriculture sector. The changing composition of sector contribution
is going to be an important activity for the policymakers to monitor and control where the technology and integration of sectors play a
significant role in economic development.

Keywords: Economic Growth, Economic Sectors, Econometrics Analysis, Co-integration, India

JEL Classification Code: C22, L60, O11

1. Introduction huge variations in economic growth of the country. The

import substitution regime (1960-80) or the inward-looking
India, with a GDP value of about 2.9 trillion dollar, policy regime, saw a significant decline in the agriculture
became the seventh largest economy in the world, and contribution giving rise to non-agriculture contribution
looking at the buying power, India is positioned as the third that resulted into the per-capita gross domestic product of
biggest economy on the planet. The structural transformation the country to rise. Most of the economists believe that
of Indian economy under different policy regimes saw an during this period of substitution regime, India’s structural
uneven growth patterns in the sectoral composition causing transformation from a primary sector to non-primary sector
economy replaced the agriculture domination with non-
First Author and Corresponding Author. Associate Professor,
1 agriculture industrial growth.
Symbiosis Institute of International Business (SIIB), Symbiosis In the reform phase (period after the year 1991-92),
International (Deemed University), (SIU), India [Postal policies of economic liberalization and subsequent impact
Address: Hinjawadi, Pune - 411057, Maharashtra, India] of globalization increased India’s domestic and foreign trade
Email: [Link]@[Link]
Associate Professor, Symbiosis Institute of International Business
2 capabilities, which came at par with the other developing
(SIIB), Symbiosis International (Deemed University), (SIU), India. countries. Post-independence, the Indian policymakers also
Email: [Link]@[Link] made conscious efforts to boost the agriculture sector with
Director, Symbiosis Institute of International Business (SIIB),
3

Symbiosis International (Deemed University), (SIU), India.

the help of green revolution and subsequent innovations
Email: asmitachitnis@[Link] in cultivation practices. In India, agriculture contribution
(14.39%) to India’s economy is much higher than world’s
© Copyright: The Author(s)
This is an Open Access article distributed under the terms of the Creative Commons Attribution average (6.4%) as per records of 2019. The liberalization
Non-Commercial License ([Link] which permits
unrestricted non-commercial use, distribution, and reproduction in any medium, provided the
regime (1980-2004) witnessed a steady growth (yet
original work is properly cited. comparatively slower than earlier substitution regime) in
 Sandip SOLANKI, Krishna Murthy INUMULA, Asmita CHITNIS /
192 Journal of Asian Finance, Economics and Business Vol 7 No 9 (2020) 191–200

structural transformation from agriculture to [Link] the agriculture sector, besides the very limited technological
license raj system eroded the benefits of sustainable trade innovations, the resource-based constrains such as farmer’s
and led to the imperfect competition among the industrialists inability to pay back loans, lack of minimum price support
and even increased corruption levels across the country. by the government, abnormal cultivation practices, lack of
The economic reforms regime (post-1991) gave more technical knowhow, and urbanization are causing distress in
thrust to agriculture to further increase its contribution to the farming community. The time reversal of the role and
the economy; as of now (2019) the share of Indian primary contribution of agriculture and service sectors in India is a
sector to the country’s GDP stood at around 14%. During the matter of utmost importance for the policymakers to strive
reforms’ period (abolition of license raj system) the opening for a balanced economic growth in the country. Because of
of the economy resulted in exploring the full potential of rapid urbanization and changing lifestyles, there is a need
the industry by its diversification from basic traditional iron for innovations to create a balanced mix of three-sector
and steel to jute and automobiles. As per the year ending composition to provide more employment opportunities to
2019, the share of India’s industry sector to the country’s the next generation. Therefore,there is a requirement to better
GDP stood at around 29%, almost double of agriculture understand the current sectoral composition of the country
contribution. and take suitable policy decisions for the development of a
The advancement in science and technology has balanced economic.
created more innovative services adds to the conventional The paper is organized as follows: Section 2 gives a
service sector, which comprises banking, finance, brief literature review explaining different types of research
telecommunications, and business process outsourcing, that have been led so far in various economies of the world.
currently regarded as the backbone contributing around Section 3 details different econometric methods that are used
57% of the economy. With the emergence of information in this study. Section 4 gives results of this study, followed
technology (IT) and information technology-enabled by conclusions in Section 5.
services, India has become the largest provider of the best
technology manpower with a great demographic dividend, 2. Literature Review
and has become one of the major IT hubs of the world. The
recent development in the banking and financial services has Scholars have tried to understand the causal association
offered more inclusive growth in the country, facilitating between economic growth and sectoral contributions to GDP
the much needed and easier economic reforms for financial and vice versa for different countries in the short run as well
inclusion. Because of the innovations and customer as long run. For example, in studies by Hwa (1988); Sastry,
feedback loops, more employment opportunities are offered Singh, Bhattacharya, and Unnikrishnan (2003), the results
in the service sector compared to agriculture and industry. inferred that the agricultural sector is still dominating and
Diversification and privatization of different services such contributes significantly to the overall economic growth in
as travel, tourism, medical sectors, etc., have contributed to general. Gollin, Parente, and Rogerson (2002) argued that
raise service sectors’ competencies. However, the country’s agricultural productivity contributes significantly to economic
transformation from primary sector to tertiary sector has its development with the help of structural transformation
own advantages and disadvantages. model. The paper also highlighted that reason for slow
India’s external trade has a significant impact on industrialization. In yet another study,Turan Katircioglu
the economic development of the country. The service (2006) revealed that agricultural output and economic growth
sector contributes more to the external trade in terms of are co-integrated and also have bidirectional causation
high technology exports compared to the agriculture and among them in the long run. In a similar study, Awokuse
industrial output, namely, agricultural products, engineering (2009) indicted that the primary sector has emerged as very
goods, chemicals & marine products, textiles, plantations, significant force for economic development in 15 emerging as
petroleum, and leather goods. The Make in India initiative well as transition countries in Africa, Asia and Latin America.
which was tossed in the year 2014 by the government is a In another research in China by Xuezhen, Shilei, and Feng
one-step forward movement to promote agriculture and (2010), an econometric model analysis was performed for the
industrial exports. The three major aims of this initiative are period 1952-2007, showing an positive connection between
first to push up the secondary sector growth rate to 12-14% the primary sector and economic growth also highlighting
per annum, second to generate one hundred million additional that the primary sector is significantly contributing to
manufacturing job opportunities in the country before 2022, economic growth. In yet another empirical study, Jatuporn,
and third to endorse secondary and allied exports. Chien, Sukprasert, and Thaipakdee (2011) using time series
The rate of technological change is not the same across analysis, the paper investigated a long-run interelationship
the sectors causing uneven growth in sector wise performance between the primary sector growth and economic growth and
and results in unbalanced economic growth in the country. In vice versa from 1961 to 2009 in Thailand.
 Sandip SOLANKI, Krishna Murthy INUMULA, Asmita CHITNIS /
Journal of Asian Finance, Economics and Business Vol 7 No 9 (2020) 191–200 193

But, there are studies in the literature where authors have government expenditure on tertiary activities. Clemes,
denied the linkage of agriculture with economic growth. For Arifa, and Gani’s (2003) findings showed a robust,
example, Katircioglu (2004) demonstrated that, in spite of positive bi-directional effect of growth of tertiary sector
agriculture being the backbone of the North Cyprus economy, and secondary sector of ASEAN economies. Similarly
the agricultural sector does not contribute significantly to the Craigwell, Downes, Greenidge, and Steadman (2008)
economic development. The result also reveals that there is investigated relationships between the primary sector,
co-integration between real GDP and industrial output and secondary sector and tertiary sector over the long run and
the service sector. short-run in Barbados over the past five decades. Results
Nemours’ research examined the causal connection showed one cointegrating relationship in both the sub-
among secondary sector growth and economic development, periods. Furthermore, Subramanian, Saghaian, Maynard,
between service sector growth and economic growth and and Reed (2009) showed that tertiary sector was found
between agricultural growth and economic growth over the to be the major driver of development of both sectors,
short run as well as the long run. Tregenna (2008) identified namely, primary and secondary, during initial phases of
that the manufacturing sector was an important sector development in Poland and Romania. Eddine (2010),
for creating demand in the service sector as well as the in his empirical study, found all Tunisian economic
economy as a whole through its strong backward linkages sectors to be co-integrated and showing unidirectional
for the South Africa. Similarly, Szirmai (2012) showed that movement. Rahman, Rahman, and Hai-bing’s (2011)
the secondary sector has significantly contributed to the results indicated that primary and secondary sectors are
development of the economy, but cannot be considered as an the most significant factors of the GDP of Bangladesh.
engine of economic growth;the study was conducted in 67 Interestingly, in this study, the service sector did not
emerging nations and 21 advanced nations during the period emerge as an influencing factor for the GDP growth;
1950-2005. Matahir (2012) showed that the primary and however, GDP was recognized as a most important driver
secondary sectors are cointegrated in the long run as well as for the tertiary sector growth.
found one-way causality direction from the industrial sector Hussin and Yik (2012) undertook a study of Indian and
to the agricultural sector over the short and long run for the Chinese economies. They used a time-series analysis to study
period from 1970 to 2009 in Malaysia. Other researchers the sectoral composition and its impact on the economic
have also identified the significant role of various sectors development. The results found that each sector has a robust,
in the economic development, e.g., Bhattacharya and Mitra positive and substantial linear relationship with economic
(1989),who inferred that relative growth of income and growth in both economies. The study was conducted over
employment in both sectors, namely, secondary and tertiary, the period between 1978 and 2007. In addition, the results of
significantly affected the nature of the agriculture-industry multiple regression analysis showed a positive relationship
relationship. between primary, secondary and tertiary sectors with the GDP
Echevarria (1997) and Verner and Fiess (1999) explored per capita in both countries India and China. Sepehrdoust
the relationship between sectoral composition and economic and Hye (2012) in their study of Iranian economy, explored
development. Results highlighted that sectoral composition the relationship between the variables gross domestic
also effects the growth and vice versa. Gemmell, Lloyd, and product (Y), industrial value added (IN), agricultural value
Mathew (1998) used time-series econometric techniques for added (AG), services value added (SS) and oil and gas value
investigating linkages between agricultural, manufacturing added (O and S). The study indicated that one percent rise in
and service GDPs (and productivity) in Malaysia. Results industrial value added (IN), agricultural value added (AG),
suggested significant impact of both manufacturing and services value added (SS) and Gas, caused the GDP to rise
service sectors on agricultural productivity in the long run. In by 0.216, 0.091, 0.431 and 0.156 percent, respectively, for
other study, Block (1999) calculated macroeconomic growth the period 1959-2010 in Iran.
multipliers resulting from income shocks to the primary Burren and Neusser (2013) highlighted the shift of the
sector, modern and traditional secondary sector in Ethiopia. US economy from good-producing to the service sector-
Verner and Blunch (1999) conducted a study on three African driven economy. In this study, 30% of the decline in GDP’s
economies and found that at least one statistically significant unpredictability was due to the service sector in spite of some
long-run relationship for sectoral GDP through comprising sectors found to be even more volatile. Singaariya and Sinha
sectoral growth. (2015) also indicated the presence of bidirectional causality
The importance of such linkages was further stressed between primary sector and economic growth, while the
by Gani and Clemes (2002) who revealed that growth unidirectional causality between the secondary sector and
of tertiary activities exercises a statistically significant economic growth and that between the primary and secondary
positive effect. Moreover, results also highlighted a sector in India. In another study of the Bangladesh economy,
strong positive effect of growth in secondary sector and by Uddin (2015), over the period from 1980 to 2013, each
 Sandip SOLANKI, Krishna Murthy INUMULA, Asmita CHITNIS /
194 Journal of Asian Finance, Economics and Business Vol 7 No 9 (2020) 191–200

economic sector (agriculture, industry and services) was co-integration analysis method for the time period from
found to have a strong, positive and significant linear 1960 to 2015.
relationship with the country’s economic growth. The study
done by Alhowaish and Al-Shihri (2015) found that there 3. Data and Methods
is a bidirectional causality among the sectoral output of the
Saudi economy in the short run. Recently, Malikov, Qineti, 3.1. Data and Scope
Pulatov, and Shukurov (2016) indicated that agriculture still
dominates in terms of employment in Uzbekistan. Islam, This research uses time-series annual data from 1960
Ahmed, Saifullah, Huda, and Al-Islam’s (2017) study used to 2015 on four economic indicators, namely, GDP per
VAR model and suggested that industrial production and capita in current US dollars, agriculture value added (% of
GDP per capita have a significant relationship with carbon GDP), industry value added (% of GDP), and services value
emission. added (% of GDP)”, collected from World Bank open data
Popoola, Araromi, Rafiu, and Odusina (2017) website ([Link]). Since independence, India
revealed that the agriculture sector makes the highest has undergone a sectoral shift from agrarian economy to
contribution to the growth of the economy, followed by a service-based economy in spite of the majority of rural
the manufacturing and oil sectors, respectively, while the population is engaged in agriculture and semi-agricultural
least contribution was made by building and construction practices, which is keeping the industry growth performance
in Nigeria. Cantore, Clara, Lavopa, and Soare (2017) used to a moderate level during the study period.
the Generalized Method of Moments (GMM) technique This research studies the causal association between
on 80 countries to treat the endogeneity bias for the period economic development and sector contribution and vice versa.
between 1980 and 2010. The findings highlighted that This study uses an endogeneity framework, which facilitates
the secondary sector is an engine of economic growth. each variable as a study variable or dependent variable, so that
Gabriel and Santana Ribeiro (2019) observed that growth the interrelationships among the variables can be captured
multipliers were 1.54 for primary sector, 1.80 for tertiary through the causality flow between the variables.
sector, 1.34 for modern industry, and 1.22 for traditional
industry. Findings showed that intersectional connections 3.2. Econometric Method
are operated on a significantly uneven [Link] (2020)
used simulation technique to study the Nepalese economy. This study uses Johansen’s method (1988, 1991) to study
The results of this study inferred that labor productivity the cointegration between the sectoral contributions to Indian
as well as sectoral contribution have favorable effects on GDP vis-à-vis economic growth. In addition to Johansen’s
growth, welfare and household income of [Link] method, the Engle-Granger causality technique is also
and Paramanik (2020) showed that economic growth rate employed to determine the direction of the causality by using
is affected positively by financial development in the long the vector auto regression (VAR) framework. The study of co-
run, while Luong, Nguyen, and Nguyen (2020) revealed integration requires that the time-series data are assumed to
that economic growth indicators have negative and be stationary and hence it is tested for possible non-stationary.
statistically significant impact on the shadow economy. Augmented Dickey Fuller (ADF) test is used as well to
Moreover, Ngo, Cao, Nguyen, and Nguyen (2020) confirm the stationary and non-stationary of the level and first
highlighted that FDI is affected by size of market and differenced variables. The selection of lag length is based on
Nurlanova, Omarov, and Satpayeva (2020) identified that the best of three information criterion scores, namely,Akaike
innovative activities is most important factor affecting Information criterion (AIC), Schwartz Bayesian criterion
sustainable development (BIC), and Hannan-Quinn criterion (HQC).
From the review of the literature it can be observed The simultaneous equation system (VAR) facilitates each
that sectoral contribution and its impact on the economic variable to be considered as endogenous on each other for
development of various nations remained a topic of most determining the significant impact of each variable on each
relevant research. A number of studies has been conducted other. The direction of the causal relations between the study
in the past on various economies about this relationship. variables is also tested for determining which variable can
To the best of our knowledge, no study has been done in cause the other variables, and the information of causal flow
the recent past, which explores the sectorial contribution to between the variables is at most important in model building
Indian economic growth using a time-series co-integration and prediction. The following VAR framework is used in
analysis. this study to explore the relationship among the agriculture,
In this paper, an attempt has been made to study various industry and services sectors of the Indian economy, with
sectoral contributions to the Indian economic growth using economic growth.
 Sandip SOLANKI, Krishna Murthy INUMULA, Asmita CHITNIS /
Journal of Asian Finance, Economics and Business Vol 7 No 9 (2020) 191–200 195

k k matrix σ”. The direction of causality is tested up to lag 10

C1 + ∑ a1i GDPt − i + ∑ b1i AGCLt − i
GDPt = between all the four variables.
=i 1 =i 1

4. Results and Discussion

k k
+ ∑ c1i INDUSt − i + ∑ d1i SERVt − i + e1t
=i 1 =i 1
4.1. Trends of Time Series Variables
k k
C2 + ∑ a2i GDPt − i + ∑ b2i AGCLt − i
AGCLt = The time-series trend of the data variables are showed in
=i 1 =i 1
Figure1, over the study period. It can be seen that the value
k k
+ ∑ c2i INDUSt − i + added from agriculture and service sectors is in opposing
=i 1 =i 1
∑d 2i SERVt − i + e2t
direction as the agriculture value added, continuously
decreasing from 45% to 15%, whereas the service sector value
k k addition increases significantly from 36% to 53%. The increase
C3 + ∑ a3i GDPt − i + ∑ b3i AGCLt − i
INDUSt = in economic growth can be seen in the post-reform period
=i 1 =i 1
k k
that is after 1991-92, whereas the industry value addition has
+ ∑ c3i INDUSt − i + increased from 18% to 34%. Both industry and service sectors
=i 1 =i 1
∑d 3i SERVt − i + e3t
show steady increase in growth, while the agriculture sector
declines continuously during the study period (see Figure 1).
k k
C4 + ∑ a4i GDPt − i + ∑ b4i AGCLt − i
SERVt =
=i 1 =i 1
4.2. Stationary Time-Series Analysis
k k
+ ∑ c4i INDUSt − i + ∑ d 4i SERVt − i + e4t All the data variables are converted to natural logarithmic
=i 1 =i 1 scale (log level) to mitigate the heterogeneity and scale affect.
Both level and first difference variables are tested by ADF
Where GDP is the per-capita economic growth, AGCL test statistic under the assumption that the underlying variable
is the contribution of agriculture to the economy, INDUS is is non-stationary. The results from Table 1 shows that data
the contribution of industry to the economy, and SERV is variables tested without constant, with constant, and constant
the service sector contribution to the economy. Where “t” with trend, respectively, confirming the non-stationary level
is the current time period and “t-i” indicates the time with form. But, after first difference they became stationary. The
lag i, and “the error term e which is assumed to be normally next step is to see whether the per-capita economic growth
distributed with mean zero and time invariant covariance and sector value addition are co-integrated or not.

Figure 1: Time series Graph

 Sandip SOLANKI, Krishna Murthy INUMULA, Asmita CHITNIS /
196 Journal of Asian Finance, Economics and Business Vol 7 No 9 (2020) 191–200

Table 1: ADF Test between the sectors is important to determine the overall
economic growth. The inter-causality between the sectors is
First also visible from the results.
Level Form P Value P Value
Difference Up to lag 4, industry sector is causing agriculture
0.02 growth, while at higher lags from 4 to 8, agriculture
0.165 0.528
l_GDP
0.656
d_ l_GDP 0.01 is causing industry contribution meaning that both the
0.05 agriculture and industry sectors have bi-directional
0.421 0.00 causality between them. Up to lag 10, the service sector
l_AGCL 0.898 d_ l_AGCL 0.00 contribution is causing agriculture value addition, and at
0.785 0.03 lag 2, agriculture value addition is causing service sector
0.558 0.00 growth, which implies that both agriculture and service
l_INDUS 0.760 d_ l_INDUS 0.00 sectors are having bi-directional causality between them.
0.823 0.02 There exists a uni-directional causality running from the
0.458 0.00
service sector to the industry sector meaning that service
l_SERV 0.660 d_ l_SERV 0.00 sector growth (Granger) causes industry sector growth.
0.523 0.01 This implies that changes in service sector contribution
are useful for predicting changes in industry contribution
to economic growth. Up to the period lag 10, there exists
Table 2: Lag selection & Causality between variables. no causality from industry to service sector, which means
that the industry sector does not (Granger) causes growth
lags loglik p Value AIC BIC HQC in service sector growth. Thus, the hypothesis of economic
growth not (Granger) causing the sectoral contribution and
1 430.80 -16.11 -15.35* -15.82
vice versa has been rejected.
2 454.24 0.00007 -16.40 -15.03 -15.88*
3 471.66 0.00418 -16.45* -14.48 -15.70
4.4. Test for Co-integration
4 485.49 0.03467 -16.37 -13.79 -15.38 Table 3 results show that both the Johansen trace test
and maximum Eigenvalues support the rejection of the
5 494.43 0.33044 -16.09 -12.91 -14.87
null hypothesis, implying that there are no co-integrating
*Indicate the best relations in the system. Trace and Lmax tests indicate that
there exist two co-integrating equations in the system to
4.3. Lag Selection and Direction of Causality explain economic growth having a long run equilibrium
relation with the sector value addition to GDP. In the
It can be seen from Table 2 that, out of all the three long run, economic growth and all the three sectors move
information criterion, Akaike criterion (AIC), Hannan-Quinn together so that any deviations caused by the shock in the
criterion (HQC) and Schwarz Bayesian criterion (BIC), AIC system will have a tendency to restore back to equilibrium.
had given the lowest value at lag 3, therefore the period of If the variables are co-integrated, then we can measure the
lag 3 is selected. Table 2 gives the details of lag length and short-run relationship by using Vector Error Correction
causality. The causal relations are tested for up to 10 lag Model (VECM) to capture the speed of the adjustment to the
periods using the Vector Auto Regression proposed by Engel equilibrium.
and Granger, wherein the null hypothesis is where economic From the above normalized co-integrating equation
growth does not (Granger) cause sectoral contribution and CE1 and CE2, it can be seen that economic growth is
vice versa. positively influenced by industrial sector contribution and
From Table 2, it can also be observed that at different inversely related to service sector contribution. From the
lag periods, there exists a bi-directional causality running results it is concluded that 1% change in industrial sector
from economic growth to sector contribution and vice-versa. contribution causes the economic growth to increase by
Up to the lag 10, economic growth is causing agriculture about 3.42% while at the same time inducing an increase
contribution, up to lag 4 economic growth is causing industry in the agriculture sector contribution by 1.12%, though the
contribution and at lag 2 economic growth is causing service contribution is minimum but significant in the long run.
sector value addition. At lag period 2, all the sectors’ Similarly, a 1% change in service sector contribution causes
contribution (value addition) is causing economic growth. the economic growth to decrease by about 6.39% while
The bi-directional causal relationship between economic causing a reduction in agriculture sector contribution by
growth and sector contribution implies that balanced growth 2.08% in the long run.
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Journal of Asian Finance, Economics and Business Vol 7 No 9 (2020) 191–200 197

Table 3: Johansen’s Co-integration Test

Rank Eigenvalues (λi) Trace Test P-value Lmax Test P-value

0 0.6694 87.816 [0.0000] 58.674 [0.0000]
1 0.3989 29.142 [0.049]* 24.056 [0.0166]*
2 0.0914 0.004 [0.9481] 0.004 [0.9482]
*Indicates two co-integrating equation.

Constatnt (standard
l_GDP l_AGCL l_INDUS l_SERV
errors in parenthesis)
β Coefficients:
CE1 1.00 0.00 -3.42* (0.38) 6.39* (0.75) 4.12* (2.10)
CE2 0.00 1.00 -1.12* (0.18) 2.08* (0.16) 3.36* (0.79)

l_SERV (P-values in
l_GDP l_AGCL l_INDUS
parenthesis)
α Coefficients: −0.14* (0.05) -0.11**(0.00) 0.08(0.00) 0.01(0.54)
-0.43*(0.05) -0.35*(0.00) 0.26*(0.00) 0.04(0.54)
Short-Run Coefficients:
d_l_GDP_1 0.13 (0.42) −0.09(0.10) 0.13*(0.05) 0.03(0.51)
d_l_GDP_2 0.11 (0.1) 0.04(0.48) -0.03(0.67) −0.01(0.81)

d_l_Serv_1 −2.62*(0.03) −1.02*(0.02) 0.68(0.18) 0.25(052)

d_l_Serv_2 −0.47(0.70) 0.05(0.90) 0.14(0.79) −0.17(0.69)
d_l_I dus_1 −2.35*(0.01) −0.89*(0.00) 0.60(0.11) 0.14(0.63)
d_l_Indus_2 −0.50(0.58) − 0.41(0.23) 0.51(0.21) −0.05(0.86)
d_l_Agcl_1 −2.86(0.01) −1.28*(0.00) 0.81**(0.08) 0.33(0.36)
d_l_Agcl_2 −1.39(0.24) −0.47(0.28) 0.55(0.30) 0.07(0.85
* at 5% & **At 10% Level of Significance; CE:Co-integrating Equation

The error correction terms (−0.14 and -0.43) are negative While shock to agriculture sector results in negative growth
and significant. The speed of adjustment to the long run in economy, industrial and service sector contribution. A
equilibrium is restored by around 14% in case of economic one standard deviation (SD) shock to industry marks in
growth and 43% in case of agriculture sector contribution. negative growth in the overall economy, industry itself and
However, in the short run, industrial and service sector service sector growth. Shock to the industry sector results
contribution show significant (Wald test) impact on economic in positive development in agriculture sector contribution.
growth and agriculture sector contribution. A one standard deviation (SD) shock to service sector
contribution marks in negative growth in both the economy
4.5. Impulse Response and agriculture sectors. Shock to the service sector results
in positive development in service and industry sector
From Figure 2 it can be seen that impulse responses contribution. In the next 10 years’ time period, one standard
generated over 10 years by Cholesky ordering show that deviation shock to economic growth results in positive
one standard deviation shock to agriculture sector results development in agriculture and economic development,
in instant decline in its contribution followed by moderate negative and decreased performance in service and industry
increase and stable performance over the next 10 years. sector contribution respectively.
 Sandip SOLANKI, Krishna Murthy INUMULA, Asmita CHITNIS /
198 Journal of Asian Finance, Economics and Business Vol 7 No 9 (2020) 191–200

Figure 2: Impulse Response Graph

5. Conclusion Thus, as explored above, all the three sectors of the

economy are significantly associated with one another and,
The structural transformation of the Indian economy if government makes any strategic decision in anyone of
under different policy regimes saw an uneven growth these sectors, it would affect people’s income and economy
patterns in the sectoral composition causing huge variations as a whole quite significantly. Moreover, as and when the
in economic growth. Post-independence, the Indian government plans new strategies to appeal for higher FDI
policymakers also made conscious efforts to boost the into agriculture, industry and service sectors, it would be
agriculture sector with the help of the green revolution worthwhile to look into evolving equations between sectoral
and subsequent innovations in cultivation practices. The contribution to GDP and its impact on the economic growth
liberalization regime (1980-2004) witnessed a steady growth as revealed in this study.
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