Validity of the Phillips curve in the Agricultural Sector: The Case of Turkey

Abstract

Agriculture, which has historically been the main employment generating sector, is still very important in newly industrializing countries such as Turkey. Theoretically, it is thought that its share in GNP will decrease over time, but the depth of the decrease will depend on the economic impact of agriculture. One way to measure this effect is to adapt the Phillips curve for the agricultural sector. Therefore, the aim of this study is to analyse the validity of the Phillips curve in the Turkish agricultural sector. The study is conducted by the Augmented Dickey Fuller, Phillips Perron and Zivot-Anders Unit Root Tests as well as Nonlinear Autoregressive Distributed Lag and Autoregressive Distributed Lag tests via TURKSTAT 2014Q1-2020Q3 dataset. Reviewing these test, we find that the cointegration coefficient calculated by the NARDL model is negative, yet statistically significant. Accordingly, the short-term imbalances are eliminated in the long-run and the system converges to the long-run equilibrium values. Nonetheless, since the coefficient is greater than one, it is a sign of significant fluctuations in the convergence of the system to the long-term equilibrium. Additionally, the long-run negative cointegrated relationship of unemployment and inflation indicates that the Phillips Curve is valid in Turkish agricultural sector.