Supply Response of Major Agricultural Products in Bangladesh: A Cointegration and Error Correction Modelling Approach

Abstract

The aim of this study is to increase our understanding of the specification and estimation of agriculture supply response in Bangladesh as well as to provide instrument for agriculture planting decision and price policy by using econometric tools-cointegration and error correction model with careful attention to time series data to avoid spurious regression of traditional econometric analysis. It is observed that farmers adjust their production rotted on the basis of price phenomena in the market. Pice mechanism and its impact on farmers' supply behaviour are crucial issue for policy makers. In this connection price incentives or price support mechanism accelerate output supply in a country like Bangladesh. For this reason farmers' reaction or response to financial incentives is a prime concern for policy makers and for the government. Econometric model has been specified on the basis of theoretical arguments. This study also provides a theoretical framework that leads to formulate an empirical model from various aspects with price and non-price variables. The study is designed to identify statistically the acreage responses of major agricultural products (rice and wheat) in Bangladesh. Time series data have been used in the analysis for the period 1972-73 to 2003-04. Econometric and statistical techniques are applied to estimate the supply responses of rice and wheat at the national level. Long-run own price acreage elasticities for aus and boro are 0.98 and 0.95 (near to unitary elastic) respectively. The results show that own price acreage elasticities for aman and wheat are 0.3 I and 0.25 (inelastic range) respectively in the long-run.