Basic Factors influencing Food grain production in Indian States: Panel Co-integration and VECM Analysis.

Basic Factors influencing Food grain production in Indian States: Panel Co-integration and VECM Analysis.

Dr.Debesh Bhowmik

ECONOMIC CHALLENGER

NO-21,ISSUE-82,JANUARY -MARCH 2019,P15-34

Abstract

In this paper Author finds the link among the food grain production , gross state domestic product at current prices, net irrigated area, fertilizer used by states, cropping intensity, state fiscal deficit  and state gross capital formation of 27 states in India from 1990-91 to 2015-16  using panel regression analysis, panel co-integration and vector error correction model. It finds positive link among food grain production ,gross state domestic product at current prices, net irrigated area, NPK used by states, cropping intensity and negative relation with state fiscal deficit. Johansen-Fisher test confirmed four co-integrating equations. VECM is stable, normally distributed and non-stationary with problem of autocorrelation. VECM states that there is significant long run association but in co-integrating equations change of food grain production and change of SDP have long run causality and they are moving towards equilibrium with slow speed but change of net irrigated area and change of cropping intensity do not move to equilibrium level because they have no long run causality with the independent variables. On the other hand, there is short run causality running from state fiscal deficit to SDP and cropping intensity only but rest of the variables did not show any short run causality.

Key Words-Food grain production, Panel co-integration, Panel vector error correction, Causality, Wald Test.

JEL classification codes-C12, C23, Q10, Q15, Q18

VII.Conclusion

The paper concludes that one per cent increase in SDP at current prices, net irrigated area, NPK used, cropping intensity, state fiscal deficit and state gross capital formation per year led to 0.177 %,0.7066%,0.0578% and1.5099%, increase in food grain production per year respectively  and decrease of 0.0599% and 0.0159% food grain production per year from 1990-91 to 2015-16 in 27 Indian states in fixed effect panel regression mode. Johansen-Fisher test confirmed three and four co-integrating equations Max Eigen and Trace statistic. VECM is stable, normally distributed and non-stationary with problem of autocorrelation. VECM states that there is significant long run association of food grain production of Indian states with state net irrigated area, utilization of fertilizers of the states, cropping intensity of the states during 1990-91-2015-16. In co-integrating equations change of food grain production and change of SDP have long run causality and they are moving towards equilibrium with slow speed but change of net irrigated area and change of cropping intensity do not move to equilibrium level because they have no long run causality with the independent variables. On the other hand, there is short run causality running from x₅ to x₁ and x₄ only but rest of the variables do not show any short run causality.