Determinants of Services Sector Growth in Pakistan

Transcription

1 Euroean Scienific Journal December 216 ediion vol.12 No.34 ISSN: (Prin) e - ISSN Deerminan of Service Secor Growh in Pakian Muhammad Ajmair Suden PhD Univeriy of Sindh Pakian Dr. Muhammad Akram Gilal Aian Profeor Economic Univeriy of Sindh Dr. Khadim Huain Aian Profeor Economic MUST Bhimber Camu doi: /ej.216.v12n34297 URL:h://dx.doi.org/1.1944/ej.216.v12n34297 Abrac Service ecor i one of he imoran ecor of he economy. I conribue more han half of he GDP and ha ubanial hare in counry exor and emloymen. In hi udy we evaluaed he facor affecing ervice ecor ouu growh uing annual daa from 1975 o 214 and ARDL mehod of eimaion. Pakian break u in wo wing in December 1971 and availabiliy of daa on mo of he variable afer 1975 deermined he choice of amle eriod. Reul how foreign rade governmen exendiure marke ize and oulaion growh are he relevan deerminan of ervice ecor ouu growh in long run. In hor run ervice ecor growh i affeced by foreign rade and eronal remiance. Diagnoic e how abence of erial correlaion and arameer abiliy. Baed on eimaed reul i i recommended ha relevan auhoriie hould imlemen olicie ha increae ervice ecor ouu growh if hey inend o augmen overall economic growh of he counry. Keyword: Service Secor GDP er caia ADF Te ARDL mehod LM e CUSUM Inroducion GDP i comoed of hree main ecor; agriculural ecor indurial ecor and ervice ecor. Service ecor i one ha accoun for more han fify ercen of GDP of Pakian. The uroe of conducing hi reearch i o idenify facor affecing ervice ecor growh in Pakian. 297

2 Euroean Scienific Journal December 216 ediion vol.12 No.34 ISSN: (Prin) e - ISSN Hiorical growh in ervice ecor growh Growh rae Fig. 1.1: Growh of ervice ecor ger Year Linear (ger) Figure 1.1 how hiorical growh of ervice ecor in Pakian. From linear rend we conclude ha ervice ecor ha grown over he ime wih decreaing rend. Conribuion of ervice ecor in economic growh: Fig. 1.2: Conribuion of Service Secor in GDP (Percenage) Ser Linear (Ser) Figure 1.2 how ervice ecor conribuion o overall economic growh in Pakian. I i eviden from he figure ha ervice ecor conribuion o overall economic growh ha increaed over a ime. Thi increae could be due o dro in agriculural ecor conribuion or overall increae in ervice and indurial ecor ouu growh. 298

3 Euroean Scienific Journal December 216 ediion vol.12 No.34 ISSN: (Prin) e - ISSN Baed on ecoral conribuion we could ay ha Pakian which heavily deended on agriculural ecor ill 198 i now a ervice and indurial baed economy. Service ecor conribue 58.8 ercen o economic growh (Economic Survey of Pakian ) and any wing in ervice and indurial ecor ouu growh ha major effec on economic growh of he counry. Conribuion of ervice ecor in exor Fig. 1.3:Conribuion of ervice ecor in Exor Ser Linear (Ser) Figure 1.3 how ervice ecor conribuion o oal exor of he counry. Boh acual conribuion and rend how ha ervice ecor conribuion in overall exor of he counry ha decreaed wih he aage of ime. Emloymen conribuion of ervice ecor Fig. 1.4: Emloymen conribuion of ervice ecor Ser Linear (Ser) 299

4 Euroean Scienific Journal December 216 ediion vol.12 No.34 ISSN: (Prin) e - ISSN Figure 1.4 how emloymen conribuion of ervice ecor in Pakian. Boh acual daa and linear rend reveal increaing conribuion of ervice ecor in emloymen of he counry over he ime. Above menion fac reveal ignifican conribuion of ervice ecor in emloymen exor and economic growh of he counry. Therefore any dro in ervice ecor ha ignifican effec on hee macroeconomic indicaor. I i herefore imoran o find ou he facor affecing ervice ecor ouu growh and recommend he relevan auhoriie olicie ha augmen ervice conribuion o economic growh of he counry. Lieraure Review Gro domeic roduc i imly um of conribuion made by agriculural indury and ervice ecor of he counry. Service ecor conribued 58.8 ercen o overall economic growh of he counry during fical year Thi ecor can furher be divided ino five ub ecor namely ranor orage and communicaion wholeale and reail rade finance and inurance ublic adminiraion and defene ownerhi of dwelling and communiy ervice. Since ervice ecor ha major conribuion in economic growh herefore i i imoran o dicu in deail he facor affecing i ouu level. Gordon and Gua (23) focued on facor affecing Indian ervice ecor ouu growh for he eriod 1952 o 2. Simle ordinary lea quare reul how ha commodiy roducing ecor foreign rade exor growh and rade liberalizaion have ignifican effec on ervice ecor ouu growh in India. Agoino e al. (26) evaluaed ervice ecor role in emloymen of Euroean counrie uing anel daa from 197 o Reul obained from Generalized Lea Square mehod rooed by and Wu (1999) how ha er caia income rivae conumion and roduciviy are he main deerminan of he US and Euroean counrie ervice ecor conribuion o emloymen. 3 In Euroean counrie iniuional framework alo layed an imoran role in ervice ecor hare in oal emloymen. Wu (25) ued fixed and random effec model for finding ou he relevan deerminan of ervice ecor ouu growh in China and India for he eriod He found er caia income foreign demand for ervice and urbanizaion ha ignifican oiive effec on ervice ecor ouu growh boh in China and India. Singh and Kaur (214) alied vecor auoregreive analyi (VAR) 31 on annual daa for 29 Belgium Germany Greece Sain France Ialy Luxembourg Neherland Auria Porugal Finland Denmark Sweden and Unied Kingdom. 3 Generalized lea quare can be ued o erform linear regreion when homocedaiciy aumion of claical linear regreion model i violaed 31 VAR can be ued o find ou long run relaionhi among he variable of inere. 3

5 Euroean Scienific Journal December 216 ediion vol.12 No.34 ISSN: (Prin) e - ISSN eriod and found GNP er caia domeic invemen foreign rade and foreign direc invemen are he relevan deerminan of ervice ecor conribuion o Indian economic growh. Jain e al. (215) alied ordinary lea quare mehod for idenifying he facor affecing ervice ecor ouu growh in India for he eriod 2 o 212. Baed on emirical finding hey concluded ha foreign direc invemen ne foreign iniuional equiy invemen and imor have oiive imac on ervice ecor growh while foreign iniuional invemen deb and exor affeced ervice ecor negaively. Above review of emirical lieraure how women age houehold ize eriary educaion of women working in ervice ecor marial au foreign direc invemen imor foreign deb exor foreign rade domeic invemen GNP er caia urbanizaion hare of ervice exor in oal exor rivae conumion roduciviy iniuional framework commodiy roducing ecor are mo ofen ued deerminan of ervice ecor growh around he world. Daa Annual daa i aken from World Bank World Develomen Indicaor IMF IFS CD ROM and Saiical Bullein of Sae Bank Reor for he eriod i ued. All variable are ued in log form. Choice of amle eriod i baed on rucural break in he daa due o counry diinegraion in wo ar in December Alo daa on mo of he variable i available afer All variable were caled by GDP and GDP ielf i ued in log level. Table 3.1 Augmened Dickey Fuller Te Level Fir Difference Variable Inerce Inerce Trend Inerce Inerce Trend a y cdy a fdi a a -5.2 frd -3.1 a a g ex a inf a -6.5 mz a -4.6 o a rem a % criical value

6 Euroean Scienific Journal December 216 ediion vol.12 No.34 ISSN: (Prin) e - ISSN Noe: a how ignificance of he variable a five ercen ignificance level. y cdy fdi frd g ex inf rem mz o and rem refer o ervice ecor ouu growh value added a ercen of GDP commodiy roducing ecor a um of agriculure and indury value added roduc a ercen of GDP Foreign direc invemen ne inflow rade Gro naional exendiure inflaion conumer rice marke ize roxied by GDP er caia oulaion oal and eronal remiance received reecively. All variable are in log form. 5% one ided criical value are aken from McKinnon (1996). ARDL aroach doe no require checking inegraing order of variable of inere. 32 Even han we checked non aionariy of he variable o make ure none of hem i I(2) and here i mix of variable ha i ome variable are aionary in level and ome in fir difference. 33 Table 4.1 how all variable exce foreign direc invemen ( fdi ) foreign rade ( frd ) and oulaion ( o ) are aionary a fir difference. Foreign direc invemen ( fdi ) foreign rade ( frd ) and oulaion ( o ) are level aionary in a lea one ecificaion. Hence we conclude ha none of he variable of inere i econd difference aionary and ome of he variable are level aionary in a lea one ecificaion. Baed on hi emirical finding ue of ARDL for evaluaing he deerminan of ervice ecor ouu growh i juified. Model Eimaion Augmened Solow growh model i ued o idenify he facor affecing ervice ecor ouu growh. I exlain funcional relaionhi beween labor and caial and ouu growh. I i imle and can furher be augmened by including oher variable affecing economic growh in he counry Service ecor ouu growh equaion i given a: y = α 1cdy 2 fdi 3 frd 4g ex 5 inf 6mz 7 o 8rem ε 4.1 Equaion (4.1) i ervice ecor ouu growh we are inereed in eimaing for Pakian. The facor affecing ervice ecor conribuion ( y ) o overall economic growh included in 4.1 are commodiy roducing ecor( cdy ) a imle um of agriculure and indurial ecor value added 32 Refer o Gilal e al. (216) for referring ARDL aroach over oher eimaion rocedure 33 F.aiic given by Pearan e al. (21) and ued for eing reence of long run relaionhi i no valid if ome of he variable ued in he analyi are econd difference aionary (Oyakhilomen and Zibah). 32

7 Euroean Scienific Journal December 216 ediion vol.12 No.34 ISSN: (Prin) e - ISSN ne foreign direc invemen ( fdi ) foreign rade ( frd ) oal oulaion ( o ) gro naional exendiure ( g ex ) inflaion ( inf ) marke ize roxied by GDP er caia ( mz ) and eronal remiance ( rem ). Subcri i ued o denoe ime erie daa and ε i error erm. ARDL verion of equaion (4.1) i wrien a: y = α 6i 1 inf y 1i i 7i mz cdy i 2i 8i i o i 12 fdi 1 13 frd 1 14g ex 1 15 inf (4.2) rereen fir difference oeraor. and fdi 3i 1 i 9i mz 1i rem 16 1 frd i 4i y o i 3i 4i i 1 1 5i g ex cdy 11 1 rem i 1 i ε 7i 8i 9i are hor run dynamic of he model and indicae long run relaionhi and 18 The null hyohei eed i: H : 1 = 11 = 12 = 13 = 14 = 15 = 16 = 17 = 18 = again he alernaive hyohei: H a : Table 4.1 Long run Relaionhi Variable Coefficien T. Saiic y 1 cdy fdi frd a 1 g a ex 1 inf mz a o a 1 rem C Noe: a how ignificance of he eimaed arameer a 5 ercen ignificance level. 33

8 Euroean Scienific Journal December 216 ediion vol.12 No.34 ISSN: (Prin) e - ISSN Table 2 Shor run eimae of Variable Coefficien T Saiic y 1 1 cdy fdi frd a g ex inf mz o rem b Noe: a and b how ignificance of he eimaed arameer a 5 and 1 ercen ignificance level. Table 4.1 how gro naional exendiure ( g ex 1) foreign rade ( frd 1) and oal oulaion ( o 1) have negaive and ignifican effec on ervice ecor ouu growh ( y ) in long run. Marke ize ( mz 1 ) eimae however i oiive and ignifican imlying ha increae in marke ize caue ervice ecor ouu growh in long run. In hor run foreign rade aear o have ignifican oiive effec on ervice indury in Pakian. Similarly eronal remiance received by reiden of he counry have oiive effec on ervice indury growh. Table 4.3: Lower and Uer criical value: Criical Pearan e al. (21) Narayan (24) Value Lower bound value Uer bound value Lower bound value Uer bound value 1 ercen ercen ercen Noe: uer and lower criical bound value are aken from Pearan e al. ( ). Table 4.3 how uer and lower bound criical value. Null of no coinegraion will no be rejeced if calculaed Wald or F-aiic i le han lower bound criical value. There i inconcluive evidence abou long run relaionhi if comued Wald or F-aiic fall beween uer and lower bound criical value. However null of no coinegraion i rejeced if calculaed Wald e or F-aiic exceed uer bund criical value. Value of calculaed F-aiic i 7.47 which i greaer han uer bound criical 34

9 Euroean Scienific Journal December 216 ediion vol.12 No.34 ISSN: (Prin) e - ISSN value given by Pearan e al. (21) and Narayan (24). The null of no coinegraion i herefore rejeced becaue calculaed F-aiic i far greaer han criical uer bound value. Fig. 4.1:Teing arameer abiliy uing CUSUM C U S U M % S ig ni f ic a n c e Diagnoic e were alied o check he model fine. Langrange mulilier e eimae i.93 wih robabiliy of.34. Thi eimae of LM e imlie abence of erial correlaion in he reidual. Furher we ued cumulaive um of recurive reidual e for eing abiliy of eh eimaed arameer. Figure 4.1 how eimaed recurive reidual doe no cro heir uer and lower criical value. Thi can be inerreed in erm of arameer abiliy and abence of any rucural break in eh daa during he eleced amle eriod. Concluion Service ecor i one of he key ecor ha conribued 58.8 ercen o economic growh of he counry during he fical year Anyhing ha affec ervice ecor ouu growh alo imac overall economic growh of he counry. Given hi background hi aer focued on he facor affecing ervice ecor. Annual daa from 1975 o 214 and ARDL aroach wa ued for eimaing ervice ecor growh equaion. Choice of amle eriod wa deermined by he counry diinegraion in wo wing in December 1971 and availabiliy of daa on mo of he variable afer Reul how foreign rade governmen exendiure marke ize and oulaion growh are major deerminan of ervice ecor ouu growh. In hor run ervice ecor growh i influenced by foreign rade and eronal remiance. Reidual e how abence of erial correlaion and arameer abiliy. Baed on eimaed reul we recommend governmen hould ado ervice ecor ouu growh oriened olicie if i aim o augmen economic growh of he counry. 35

10 Euroean Scienific Journal December 216 ediion vol.12 No.34 ISSN: (Prin) e - ISSN Reference: 1. AgoinoA.D. Serafini R. and Warmedinger M.W.(26) Secoral exlanaion of emloymen in Euroe he role of ervice. Euroean cenral bank Working aer erie no Gordon J.& Gua P. (23) Underanding India' Service Revoluion IMF-NCAER Conference A Tale of Two Gian: India and China Exerience wih Reform Jain D. Nair K.S. and Jain V.(215) Facor affecing GDP (Manufacuring Service Indury): An Indian erecive. Annual Reearch Journal of Symbioi Cenre for Managemen Sudie Pune Vol KaliaanaS.R. Khamib K.M. and Imail N.W. (215) Deerminan of Service FDI inflow in ASEAN Counrie. Inernaional Journal of Economic and Managemen Vol.9 (1): Singh M. and Kaur K. (214) India ervice ecor and i deerminan: An emirical inveigaion. Journal of Economic and Develomen Sudie Vol. 2(2) Wu Yanrui (25) Service ecor growh in China and India: A comarion. Forhcoming in China. An Inernaional Journal Rerieved from: 36