Agricultural growth and inter-sectoral linkages in a developing economy

Does growth in the manufacturing sector of an economy spillover to agricult ure, or do sectors share similar growth rates only when they share some com mon exogenous stimuli? The limited number of investigations of this issue, for cross-sections of countries, have found some evidence in favour of spil lovers though the methodologies used cannot readily separate correlation fr om causation. Adapting the Feder (1982) model of sectoral externalities to a time-series context, we examine how far agricultural output in Malaysia h as been affected by inter-sectoral spillovers. Our results suggest that exp ansion of manufacturing output, though associated with red reduced agricult ural output in the short-run, is associated with agricultural expansion ove r the long-run. Sec-vice output growth on the other hand seems to have been inimical to agricultural growth in both the short- and long runs, while ca usality testing supports the case for spillovers rather than "common causes ': Evidence on sectoral productivity is consistent with neoclassical argume nts suggesting that the benefits of higher productivity in manufacturing te nd to skill over to agriculture, encouraging productivity convergence.