Abstract: China holds a huge rural population and large-scale agricultural production. Agriculture was a determinant of the economy for a long period. With the fast-expanding economy, the agricultural sector may still lead the national aggregate output. This article mainly aims to examine the role of agriculture in the aggregate economy in China, particularly its short-term dynamics and long-term impacts. Quarterly time series spanned 2002-2016. Data included agricultural output and aggregate GDP in nominal terms. The Phillips-Perron test, the augmented Dickey-Fuller test, the Dickey-Fuller generalised-squared method and the Elliott-Rothenberg-Stock point-optimal test suggested at least two unit roots. The Perron test suggested a unit root. Hence, cointegration rarely existed. GDP and agricultural output in nominal terms embrace a strong long memory. Conventional vector-autoregression and error-correction models could not be constructed. Instead, Toda-Yamamoto Granger causality tests suggest that agricultural output does not Granger cause aggregate GDP and vice versa. The empirical results are astonishing. Compared with the period before the 1990s, the role of agriculture in the economy in China has declined dramatically. Fast-expanding industry and real estate sectors might reduce the effect of the agricultural sector on the economy. The study suggests that short quarterly data in nominal terms may affect the results. More supports to the agricultural sector and rural population by the authority at various levels are needed.
Keywords: Agriculture, aggregate economy, dynamics, Granger causality, nominal output, quarterly series, unit root.
Title: The Effect of Agriculture on the Aggregate Economy in China
Author: Gaolu Zou
International Journal of Interdisciplinary Research and Innovations
ISSN 2348-1218 (print), ISSN 2348-1226 (online)
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