Does Human Capital Link to Agriculture Sector? Review Evidence from Bangladesh

Does Human Capital Link to Agriculture Sector? Review Evidence from Bangladesh
K M Nuruddin Sarawar^1,2, Swati Anindita Sarker³, Airin Rahman^3,4, Md. Din Il Islam⁵, Md. Shah Alamgir⁶, K M Mehedi Adnan⁶,³*
¹ICT Division, Bangladesh Krishi Bank, Dhaka, Bangladesh
²Department of Computer Science and Engineering, Dhaka University, Dhaka, Bangladesh
³School of Finance and Economics, Jiangsu University, Zhenjiang, 212013, P.R. China
⁴Dept. of Agribusiness and Marketing, Sher-e-Bangla Agricultural University, Dhaka, 1207, Bangladesh.
⁵College of Economics and Management, Northwest A&F University, Yangling, P. R. China
⁶Department of Agricultural Finance and Banking, Sylhet Agricultural University, Sylhet-3100, Bangladesh
*Correspondence Author

DOI: https://dx.doi.org/10.47772/IJRISS.2023.701131

Received: 29 September 2023; Revised: 12 October 2023; Accepted: 18 October 2023; Published: 16 November 2023

ABSTRACT

Bangladesh’s economy depends heavily on agriculture, which therefore poses a formidable challenge to ending food insecurity. Education, workforce development, and technical field knowledge upgrades are required for this contest to increase the efficiency of the agricultural industry. The modern agriculture sector is prioritized in terms of sustainable economic growth.  A key factor in Bangladesh’s agriculture sector’s growth has been human capital. This study’s main goal was to evaluate the relationship between human capital and agricultural growth in Bangladesh from 1972 to 2021. To examine the relationship between the study variables with the analysis of the long-run and short-run, an autoregressive distributes lag (ARDL) bound testing technique to co-integration was used. The findings showed that every variable has a major impact on the agriculture industry. According to the findings, policy changes are required regarding investments in the education sector to strengthen human capital and an agricultural credit that contributed to increase Bangladesh’s agricultural output.

Keywords: Human capital; agriculture sector; land; water, Bangladesh

INTRODUCTION

Production of crops and cattle, especially in developing nations, is essential to economic progress [1, 2]. Additionally, this industry guarantees the security of food and essential nutrients while also hiring pastoralists and supporting rural economies significantly [3]. The agricultural industry also contributes to emerging economies’ export shares [4, 5]. Due to the food crisis and price increase, the agricultural sector changed the game for global politics and policymakers between 2008 and 2009 [6, 7]. In South Asian countries, agriculture is far more significant than other industries since one in three people are directly employed in it, it greatly boosts GDP, and it provides rural people with a means of subsistence [8, 9]. In Bangladesh, the agriculture industry contributed 15% of the total GDP [10]. Human capital biodata includes technique differences, sanitation, health, appropriate education, job training, immigration, and a connection with all population abilities for the development of the country [11]. Due to changes in human activity, individual turnover is now more lucrative, profitable, and beneficial for an economy [12]. Accordingly, Bangladesh’s half-decade plan (2013–2018) set a target of 4.0–5.0% and effectively attained it in the agriculture sector by increasing total factor productivity (TFP) and incorporating new technologies [13].  In Bangladesh, over 51% of all jobs are in the agricultural sector [14]. While a literature review identified the role of education in inefficient farming and growth [15], it is generally accepted that well-trained, qualified human capital makes an evaluation in crop farming activities directly related to total factor productivity (TFP) change [16]. Bangladesh is one of several developing nations whose economic development is largely dependent on how well its agriculture sector performs [17]. However, agriculture will undoubtedly have an impact on a nation’s development [18]. Experience in the past shown that eras of strong and weak agricultural growth often coincided with those of strong and weak national economic performance [19]. More over half of the world’s population is fed by agriculture, making it the most powerful industry in the world [20].

Thus, the paper main goal is to investigate the human capital effect on agricultural productivity increase and on the agricultural frontier expansion in Bangladesh. Such an objective is due to the importance of agricultural production in social and economic development, as it ensures the food and nutritional security in developing countries. In addition, agricultural production impacts the environmental, social and structural changes in the economy. In this sense, the concern arises to assess the possible implications of human capital on the agricultural sector in Bangladesh. Education and economic development are strongly correlated [21]. People with greater education pick up useful skills faster and can demonstrate them more naturally [22]. However, research was done, and the findings showed the new technology transformation and economic growth in the agriculture sector [23]. It also studied how the literal peoples readily accept modern technology as opposed to illiterate people [24].

CONCEPTUAL AND THEORETIC REVIEW

Human Capital a Conceptual Review

Schultz popularized the concept of human capital and the human capital model, which acknowledged human potential while enhancing productivity [25]. The power of competent human capital to increase sectoral and personal income has been documented [26]. The essential components of human capital include training, education, experience, and skill [27].

Human Capital a Theoretical Review

Rising agriculture sector expansion is accompanied by ongoing investments in human capital in developing nations [28]. The expansion of the agriculture industry can be influenced by human capital via a number of functional channels [29]. As surplus production is transported locally and internationally and human capital becomes more technologically savvy, the economy can advance [30]. Through the commercial marketing of crops and livestock products, the way farmers live their life is improved, which benefits numerous economic sectors. The agricultural sector must adopt contemporary methods, including new inputs, knowledge, and understanding of market demands [31]. The use of technology, management expertise, and the application of various growth strategies enable privatized enterprises to achieve their full potential [32].

According to the dual economy model, the economy can be split into the industrial and agricultural sectors, which make up the majority of this model [33]. The bulk of rural residents reside in rural areas, and agricultural goods constitute the mainstay of their income. It has been found that if some workers leave a labor group while the output remains constant, the marginal productivity of those workers is equal to zero [34]. The productivity and profits of the industrial sector improve with the involvement of labor, and farm sector salaries follow suit [35].

Prevailing Literature

Economic growth is influenced by human capital, which also helps to coordinate sectoral growth. There are over 184 million people living in Bangladesh, and the rural population is closely linked to the agricultural economy [28]. Approximately 15% of the nation’s gross domestic product (GDP) is contributed by the agriculture sector, which employs more than 51% of the labor force [10]. Rice, cotton, sugarcane, wheat, and maize are Bangladesh’s major agricultural crops [36]. MIsra et al. research confirms that human capital has a positive impact on agricultural profitability [37]. Using skilled and specialized workers increased the rate of output growth. Rural profitability is increased as a result of human capital’s contributions to the agricultural sector and the production growth blueprint [38].

Trade liberalization, modern technology, physical capital, and the total workforce have all had an impact on overall output, which has in turn influenced agricultural growth and lowered the unemployment rate [39]. Bangladesh’s agriculture sector might grow faster with increased physical capital and skilled workers [40]. A rise in agricultural output directly contributes to the reduction of poverty since it creates jobs and money for households. A rise in technology, institutional change, asset endowments, and access to the market for progressive stockholders may lead to a decrease in poverty and an increase in agricultural productivity [33]. Agriculture and economic expansion had been strongly impacted by the labor educational system [41]. To achieve the desired industrial growth, it is essential to improve labor organization, planning, and management skills. Through technical training, advanced public education, and vocational education, productivity development in goods and services can be increased [30]. Economic growth is undoubtedly impacted by human resource development (HRD) and human resource management (HRM), while excellence in vocational training and public advanced training also increased the productivity of goods and services (Mehdi 2011). Total factor productivity (TFP) and GDP growth are found to be positively correlated. Productivity is significantly impacted by technological advancements, technical efficiency, and farmer education [36].

According to Kaboski’s (2009) research, skilled labor (such as education, vocation, and industry experience) directly influences economic growth [42].  The ability of the labor force and productivity can be improved by increasing the availability of skilled and educated labor [43]. Cropped output is undoubtedly impacted by agricultural finance, whereas income in the sector is influenced by two mechanisms: wages per section of cropland and wages per developed area [44]. Impact of human capital on an economy’s ability to grow economically.

MATERIALS AND METHODS

Sources of Data

Time series data was used from 1972-2021which  was collected from the Economic Survey of Bangladesh (GOB) and World Development Indicators (WDI) as reported the variables description in (Table 1).

Table 1: Variables description and data sources

Model Specification

The following model uses the regression technique to examine the relationship between dependent and independent variables. The implicit forms of the multivariate regression model specification are followed.:

In Eq. (1) AVA indicates the agriculture value added, Lr indicates the labor force, La indicates the agricultural land, Tr show the tractors, HC indicates the human capital, W shows the water availability and Cr represents the agricultural credit. Equation 1 can also be written as;

By employing natural logarithm to Eq. (2) it can be written as;

Eq. (3) is the log-linear model, and  is constant intercept,  show the natural logarithm of agricultural value added,  indicates the natural logarithm of labor force,  shows the natural logarithm of agricultural land,  indicates the natural logarithm of tractors,  shows the natural logarithm of human capital,  shows the natural logarithm of water availability, presents the natural logarithm of agricultural credit, and  is error term.

Co-Integration with Autoregressive Distributed Lag (ARDL) Model

 This study employs the Autoregressive Distributed Lag (ARDL) bounds testing method, which was created by Pesaran and Shin in 1998 and further extended by Pesaran et al. in 2001, to examine the relationship between the dependent and independent variables with the analysis of the long-run and short-run [45]. With the exception of the presence of I(2), the co-integration testing approach is applicable regardless of the sequence of integration with the relevant variables, I(0) and/or I(1). The ARDL representation of equation (3)’s unrestricted error correction model (UECM), shown in equation (4), was used to explore the long-run and short-run relations:

Where, Δ indicates the difference operator, β₀ is constant intercept, α indicates the coefficients of long-run, while β imprisonments the coefficients of short-run. The co- movement of the long-run analysis among the study variables of interest is ascertained on the basis of F-Statistics estimation.

EMPIRICAL RESULTS AND DISCUSSIONS

Unit Root Test Results

The results of the Phillips-Perron unit root test with intercept, followed by both intercept and trend, and the Augmented Dickey-Fuller unit root test are presented in Table 2.

Table 2.  Results of augmented dickey–fuller and Phillips–Perron unit root test

*, **, *** showed the rejection of null hypothesis at 1%, 5% and 10% level of significance

In order to determine the significance of the variables at 1%, 5%, and 10% and the fact that none of the variables had been integrated with the order of I(2), the results of the augmented Dickey-Fuller unit root test and Phillips-Perron unit root test were combined. The Autoregressive Distributed Lag (ARDL) model was then used. The ARDL bounds testing is suggested as being superior and preferable due to its many advantages, including not requiring that all of the system’s variables be of an equal order of integration; being a very efficient estimator even with small samples; and even accepting some endogenous regressors. We choose to use the ARDL approach to cointegrate because it is very efficient even with small samples.

Bounds Testing Procedure

To determine whether there was a long-term link between the dependent and independent variables, a limits test was used. To determine the value of F or Wald statistics for the importance of the lagged variables, the OLS method is used. Table 3 provides an illustration of the significance of F or Wald statistics. The F-statistic has a value of 5.61889205, which is higher than the critical values at the upper bound at the (1% and 5%) significant level. These findings demonstrate that human capital and a measure of the performance of the agriculture industry are linked throughout time.

Table 3. ARDL bounds test for co-integration results

The limits tests shown in table 3 summarize whether dependent and independent variables exhibit cointegration associations at the (1%, 5%, and 10%) significant levels. Additionally, we applied the Johansen and Juselius (1990) cointegration test, and Table 4’s interpretation of the results using trace statistics and the greatest eigenvalues.

Table 4: Results of the Johansen cointegration test using trace statistic and maximum eigenvalues.

Denotes rejection of the hypothesis at the 0.05 level, ** p-values.

Table 5. Long-run analysis results ARDL Co-integrating and Long-Run Form

Concentrating on the elasticity of variables in long-run analysis, the results naked that the human capital of Bangladesh has optimistic and significant impact, as the economic growth has coefficient of 1.7647 with p-value of 0.0337, Likewise (e.g., the coefficients of employed labor force, agriculture value-added growth, agriculture land area, agriculture machinery tractor, water ability and agriculture credits) had encouraging and significant impact upon each other and with economic growth. The coefficients of the employed labor force, agriculture value-added growth, agriculture land area, agriculture machinery, water availability, agriculture credit are 16.4887,0.3859, 1.0018, 2.3340, 0.4063 and 0.6983 with their p-values of 0.0908, 0.7123, 0.0092, 0.0041, 0.00, and 0.0908, respectively.

Short-Run Analysis

The outcomes of the short-run analysis were shown in Table 6. The co-integration existing among the set of variables necessitates an error correction model (ECM) to capture the dynamics of the short-run relationship with its co-efficient, which measures the speed of adjustment. The speed of adjustment towards the long-run equilibrium following a short-run shock is indicated by the error correction model. The major benefit of the (ECM) representation is that it avoids the issues of spurious correlation between dependent and explanatory factors, which must be bestowed to co-integrated variables. The short-run dynamic parameters were analyzed using the unrestricted error correction model (UECM). Engle and Granger developed the error correction model to compare the long-run stability of economic variables with their short-term performance.

The short-run relationship’s dynamics have an R-squared value of 0.9938, which shows that there is about (99%) variation in economic growth as described by the model’s independent variables. The independent variables’ joint importance established the F-statistic at a (1%) level of significance. The Durbin-Watson (DW) statistic for the absence of any auto-correlation has a value of 3.4743, which did not match the usual DW value. However, this is sufficient to show whether the model contains any auto-correlation.

Table 6: Short-run analysis results

Table 7 shows the Breusch–Godfrey Serial Correlation Test, and heteroskedasti city test with p-values of 0.05572 and 0.10764 respectively.

Table 7. Diagnostic and stability tests outcomes

Structural Stability Test

The long-run and short-run constraints are stabilized using stability tests that use the CUSUM and CUSUM square point. Figures 1 and 2 show the graphs for the CUSUM test and CUSUM square test, both of which show that all of the values fall inside the crucial ranges at a significance level of 5%. It demonstrates that the long-run and short-run parameters are stable.

Figure 1. Plot of CUSUM

Figure 2. Plot of CUSUM of square

CONCLUSIONS

ARDL bound testing approach to co-integration was used to evaluate the link between the research variables with the analysis of both the long-run and short-run in order to determine the association between human capital and agricultural expansion. The preliminary findings suggested that factors such as agricultural financing, labor force, tractors, water accessibility, and human capital index have a major impact on Bangladesh’s agricultural growth. In order to strengthen the agricultural sector, the government of Bangladesh should implement new policies involving human capital. In addition, the government must ensure that agricultural finance is timely and reasonably priced. It is also advised that the growth of agriculture be accelerated by both the quality and quantity of human capital.

Human capital has been identified as a significant aspect in the advancement and growth of the financial sector. This study has made an effort to analyze how human capital affects Bangladesh’s actual GDP or development in the agricultural sector. The human capital is the information factor of generation, according to the neoclassical development theory, but people tend to think of it more like physical capital, which consistently loses value. Recent years have seen an increase in the relevance of human capital due to growing sectoral growth concerns. In the context of Bangladesh, this was the time when the government placed a strong emphasis on the increased use of human capital policies and sectoral growth-promoting initiatives. Policymakers, economists, and researchers can evaluate the performance of human capital and sectoral growth in Bangladesh and examine the status of human capital in this direction of sectoral growth using the review offered in this study. Less research, however, has been done on identifying additional human capital resources and factors that limit the expansion of the agriculture sector’s contribution to overall economic growth. Future study may be conducted in this area.

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