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Abstract

This study examines the causality between total factor productivity (TFP) and capital investment in Japanese agriculture for the period 1957-97. We employ the Granger causality test to determine the causality between the two variables. This study also investigates movements in total output, total input and TFP for average farms of four size classes for the same period. We employ the aggregation technique to estimate total output and total input and use a large pooled cross-section and time series data set. It has been found that both TFP and capital investment had a fairly high growth rate from the mid 1950s to the early 1970s, and thereafter it started declining. The result of this study shows that there is a significant and positive bi-directional Granger-causal relationship between TFP and capital investment in Japanese agriculture over the long term.

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