Public Expenditure and Agricultural Production in Meghalaya, India : An Application of Bounds Testing Approach to Co-Integration and Error Correction Model

An attempt is made in this paper to examine the short and long run relationship between government expenditure on agriculture and its allied sector and agricultural output of Meghalaya. The study is based on a time series data of 30 years from 1984-85 to 2013-14. During this period, the state economy has experienced both upswing and downswing in its agricultural sector. Government expenditure in different sectors including agriculture and its allied activities, education, transport etc is expected to promote agricultural production. Here ARDL approach to co integration and an error correction representation of the ARDL model have been used due to certain advantages. The result of the Bounds test indicates the presence of a long-run co integrating relationship between the variables in the study. The results reveal that in the long run, the effect of public expenditure through agriculture and allied activities, on agricultural output is significantly negative, while expenditures on education and transport on agricultural output are significantly positive that is in line with several earlier studies. Public expenditure in healthcare however does not significantly affect agricultural output. The findings reveal that judicious use of government spending have significant potential to accelerate agricultural development and improve its efficiency