Testing the link between Rural Wages and Food Inflation in India A Co-integration Approach
Journal Title: IOSR journal of Business and Management - Year 2018, Vol 20, Issue 1
Abstract
Real rural wages have increased since 2007 and food inflation remained around 9 percent during 2007-2013. So the present study looks at the trends in rural wages and its linkage with food prices during July 2006 to October 2013.Using Co-integration approach followed by Granger Causality based Vector Error Correction Model (VECM), the paper empirically tests the dynamic inter- linkage between WPI food prices and rural wages by using time series monthly data. The present study employs Johansen and Juselius Co-integration approach to analyse the long run association among the variables followed by the VECM to check the direction and causality between rural wages and food pricesin short-run and long-run. Cointegration results show that there is at least one co-integration equation among the variables under. The normalized Co-integrating equation reveals that both food prices and rural wages of unskilled labourers have a significant positive effect on agricultural wages. 1 percent increase in unskilled wages of non-agricultural workers will lead to 1.01 percent increase in farm wages. Likewise, 1 percent increase in Food prices leads to 0.30 percent rise in agricultural wages. VECM indicates that all the coefficients of all the three error terms were found to be negative in sign and statistically significant at 5 % and 1% level of significance which implies that there is long run causality between the variables with feedback mechanism. We also tested short run causality based on Fstatistics calculated by the 5th order VEC model by using Wald statistics between food prices and rural wages .The Wald test shows there is at least one way causation among the variables.
Authors and Affiliations
Haroon Rasool, Prof. Md. Tarique
Keywords
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- EP ID EP409423
- DOI 10.9790/487X-2001018798.
- Views 140
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