Does the Dog Wag the Tail or the Tail the Dog? Cointegration of Indian Agriculture with Nonagriculture

An oft-repeated refrain in the development literature has been the “neglect” of the agricultural sector vis-à-vis the industrial sector in the development process of the less developed economies. Because infrastructure is crucially linked to both agricultural and industrial development, poor infrastructure development may make it appear as if slow agricultural growth has caused slow industrial growth. Further, in estimating the relation between agriculture and industry, the former should not be assumed to be exogenous; rather, this should first be established. Moreover, given the presence of nonstationarity conventional regression techniques may yield spurious regressions and significance tests. To circumvent these various problems, we study the cointegration of the different sectors of the Indian economy in a multivariate vector autoregression framework.  2000 Society for Policy Modeling. Published by Elsevier Science Inc.