Sarhad J. Agric. Vol.24, No.3, 2008 AN ANALYSIS OF PRODUCTIVITY GROWTH AND RATE OF RETURN TO RESEARCH IN AGRICULTURE SECTOR OF NORTH WEST FRONTIER PROVINCE Adiqa Kiani ABSTRACT Using Tornqvist-Theil Index, average annual total factor productivity (TFP) growth rate of all major and minor crops in NWFP is found to be 1.5 percent, during 1969-2004. The marginal internal rate of return to provincial investment in research for TFP growth was in the range of 34 to 42 percent over the same period. Almon distributed lag model has also been estimated, using three different lags structures based on a Cobb-Douglas production function specification. Inputs in this production function include irrigated/cultivated area, number of tractors, road kilometers, labor, village electrified and fertilizers. First three inputs are found to have statistically significant impacts in all three estimates of the production function. Some policy implications of the results are also discussed. Keywords: TTI, R, Total Factor Productivity INTRODUCTION Productivity growth in agriculture has been the subject of intense research over the last five decades. Development economists and agricultural economists have examined the sources of productivity growth and of productivity differences among countries and regions over this period. Productivity growth is essential if agricultural output is to grow at an adequate rate to meet the demands for food and raw materials arising out of steady population growth. The role of productivity growth in accelerating the pace of economic growth is well recognized in economic growth literature. In the neo-classical growth accounting framework, the output growth is calculated as sum of the growth of capital accumulation, growth of labor and growth of productivity and efficiency. Thus, for any given combination of factor inputs (labor and capital), shifts in production frontier are engendered by the improvements in productivity. During the 1970s, and 1980s a number studies analyzing of cross-country differences in agricultural productivity were conducted, including Hayami and Ruttan (1970, 1971), Kawageo and Hayami (1983, 1985), Kawageo, Hayami and Ruttan (1985), Capalbo and Antle (1988), and Lau and Yotopoulos (1989). A majority of these studies used cross-sectional data to estimate a Cobb-Douglas production function using regression analysis. The focus was generally on farm size, education, and research in explaining cross- country labor productivity differentials. In the past decade, the number of studies investigating cross- country differences in the agricultural productivity levels and growth rates rose significantly. This is most likely driven by two factors, i.e., the availability of some new panel data sets and the development of new empirical techniques to analyze these types of data (for example, Data Envelopment Analysis (DEA) and Stochastic Frontier Analysis (SFA) techniques as described in Coelli, Rao and Battese 1988). The objectives of this study are twofold. First, it provides an estimate of total factor productivity in the agricultural sector of NWFP and analyzes its growth. Second, it explores the relationship between productivity growth and expenditures on research and extension. Significance of agriculture sector in NWFP Most of the rural population in NWFP is engaged in agriculture. Winter (rabi) crops are mainly rain fed, while summer (kharif) crops rely on surface irrigation. For the majority of households, the share of agricultural income in total household income varies from 60 to 70 percent. The main crops include maize, wheat, paddy, fruits, vegetables, and fodder for livestock. Livestock and poultry, generally tended by women, are an important source of nutrition and the main savings instrument to meet emergency cash requirements. Total cropped area of NWFP in 2005 was 1.8 million hectares (Table I), which is 8.44 percent of the total Pakistani cropped area. About 64 percent of this area is used for the production of tobacco. Maize and Barley contributed a lot. Department of Economics, Federal Urdu University of Arts, Sciences and Technology, Islamabad – Pakistan