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

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Volume 15 Issue 2 2019

Author(s):

Asif Warsi
Iqra University.
asifwarsi@gmail.com

Dr. Amena Sibghatullah
PAF KIET University.
amenasibghat@gmail.com

Dr. Athar Iqbal
Iqra University.
athar@iqra.edu.pk
Abstract The study uses data for a set of 81 countries from World Development Indicators from the year 2002 to 2015 while applied the 2SLS and Instrumental variable approach to estimate the coefficients associated with the 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 exists in our framework and the causal relationships can be controlled through an instrumental variable approach (I.V.). The coefficients from the 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 than the coefficients obtained through OLS. It is suggested therefore that the approaches like I.V approach and 2SLS should be employed in the studies on this area of research.
Keywords Agriculture, Physical Capital, Instrumental Variables (IV), Endogeneity/Endogeneity
Year 2019
Volume 15
Issue 2
Type Full Length Paper
Recognized by Higher Education Commission of Pakistan, HEC
Category "Y"
Journal Name IBT Journal of Business Studies
Publisher Name ILMA University
Jel Classification J43, N50, O13
DOI http://dx.doi.org/10.46745/ilma.jbs.2019.15.02.05
ISSN no (E, Electronic) 2409-6520
ISSN no (P, Print) 2416-8393
Country Pakistan
City Karachi
Institution Type University
Journal Type Open Access
Type of Review Double Blind Peer Reviewed
Format PDF
Paper Link http://ibtjbs.ilmauniversity.edu.pk/journal/jbs/15.2/5.pdf
Page 62-74
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