Impact of Government Expenditures on Total Factor Productivity of Agriculture Sector in Iran

According to theoretical and empirical studies, the changes in government expenditures may have a direct effect on the efficiency of various economic sectors, including the agricultural sector. Therefore, in this study we use the bounds test method and Granger causality test to investigate the effect of current and development expenditures on total factor productivity of Iran agricultural sector using annual data over the period of 1967-2010. The results of long-run estimates indicate a negative and significant impact of current government expenditure on total factor productivity of the agricultural sector of Iran. In general, the results of error correction model suggest that the government's current and development expenditures do not have a significant effect on total factor productivity of the agricultural sector in the short run. Granger causality test results indicate a causal long-run relationship from government current and development expenditures to total factor productivity growth in the agricultural sector. According to the estimates, in the long-run, the variables of development expenditures, mechanization and export of agriculture sector have positive and significant effect on total factor productivity of agriculture. Therefore, in order to increase total factor productivity of the agricultural sector, it is suggested that the government increases the share of development funds and the share of agricultural sector's funds from his development budget and supports the development of agricultural exports and promoting agricultural mechanization.