Investment behaviour in Indian agriculture: a theoretical and empirical investigation

Abstract

Investment behaviour is an important economic relation that has been difficult to determine in the context of developing economies. Yet, it is clearly recognized that investment is critical for sustained growth in the agriculture sector. There has been significant concern in India in the last 5 to 10 years about a reduction in the growth of agricultural investment. In this context, the present study seeks to examine the nature of investment behaviour from the 1950 s to the early1990 s using the theory of investment behaviour. It develop sa theoretical model which is then empirically estimated. The findings indicate substantial changes in investment in the post-1980 period. Government investment which was almost continuously rising before 1980/81 shows a decline which continues beyond 1986/87 on to 1992/93. Private investment, on the other hand, fluctuates substantially with some decline between 1980-81 to 1986/87, but after 1986/87 it starts rising and continues to rise till 1992/93. Model results indicate a considerable change in the investment behaviour between the 1952-1980 period and 1980-1992 periods. For instance, the relatively strong role of output prices in raising private investment in the earlier period is not validated in the later period. The strong positive impact of government investment on private validated in the later period. The strong positive impact of government investment on private investment in the earlier period turns empirically adverse in the later period, possibly, in part, due to declining public investment and rising private investment. The results are subject to data constraints and modelling limitations, and issues raised certainly require further investigation.