EMPIRICS OF AGRICULTURAL PRODUCTION: COMPARISON OF INSTRUMENTAL VARIABLE AND TWO STAGE LEAST SQUARE APPROACH

Download

Volume 15 Issue 2 2019

Author(s):

Asif Warsi
Iqra University
asifwarsi@gmail.com,

Dr. Amena Sibghatullah
Dr. Amena Sibghatullah
amenasibghat@gmail.com,

Dr. Athar Iqbal
Iqra University
athar@iqra.edu.pk

Abstract The study uses datafor a set of 81 countries from World Development Indicators from year 2002 to 2015 while applied 2SLS and Instrumental variable approach to estimate the coefficients associated with standard production function of agricultural production and compares its results with the coefficients obtained through OLS. The argument behind this approach that in the standard form, capital is likely to be endogenous in the production function and if it is true, the coefficients obtained through OLS would be inconsistent. Capital is found to be endogenous in the study. It is also noticed as endogeneity exist in our framework and the causal relationships can be controlled through instrumental variable approach (I.V.). The coefficients from I.V approach and 2SLS are compared with OLS estimates. I.V and 2SLS coefficients are found to be slightly different however, the obtained coefficients through both approaches are more reliable then the coefficients obtained through OLS. It is suggested therefore that the approaches like I.V approach and 2SLS should be employed in the studies pertaining to this area of research.
Keywords Agriculture, Physical Capital, Instrumental Variables (IV), Endogeneity/Endogeneity
Year 2019
Volume 15
Issue 2
Type Research paper, manuscript, article
Recognized by Higher Education Commission of Pakistan, HEC
Category "Y"
Journal Name IBT Journal of Business Studies
Publisher Name ILMA University
Jel Classification -
DOI https://doi.org/10.46745/ilma.ibtjbs.2019.152.05
ISSN no (E, Electronic) 2409-6520
ISSN no (P, Print) 2415-8393
Country Pakistan
City Karachi
Institution Type University
Journal Type Open Access
Manuscript Processing Blind Peer Reviewed
Format PDF
Paper Link http://ibtjbs.ilmauniversity.edu.pk/journal/jbs/15.2/5.pdf