Muhammad Irfan Arshad

Roll No: AX846575

Professor Dr. Syed Hassan Raza
LEVEL: MS (MANAGEMENT SCIENCES)
Date: 25
th
Sep 2014
ADVANCED RESEARCH METHODS (8701)
SEMESTER: SPRING 2014
ASSIGNMENT No. 2
(Units: 59)
ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD
(Department of Business Administration)
Usage and Importance of Sources in Social Sciences Research
Introduction to the study
The study focuses on the usage and importance of sources and figures out what we're going
to do with the source in our paper. By considering the role, each source will play in our paper, we
will begin by thinking about the role that source played in our research process. The study also
explains that the sources tend to lie at the core of any serious historical research while has ensuring
that these valuable documents are now accessible to all for research and study. Guide our in-house
editorial team in the selection and collation of relevant source material, guaranteeing that all
information is presented in a logical order and is truly representative of the subject and research
need. They also offer guidance on the production of supporting indexes and bibliographic tools to
facilitate access and encourage widespread use of these core research materials. They also enable
to create research question, sources of research questions are discussed and their impact is also
analysed. By considering the research uses of secondary sources, this study also explores the issue
that arise in accessing the data, extracting and cleaning the data, and the types of analyses -
especially sociological analyses - that the data can be used to feed. Social theory and research
assume there are patterns in social life. This assumption is sometimes challenged on several
grounds. First, there are always individual exceptions. Theory and research generate knowledge
about collections of individuals, not about lone individuals. In addition, they make these
statements in terms of percentages or probabilities.
Background situation
Social research has numerous applications, many of which depend on the ingenuity of the people
using it. Leaders in education, business, labor, and government, for example, sometimes use
existing or commissioned research to help them decide whether a school should be dosed in a
particular neighborhood; whether a university should be decentralized into minicolleges; how
teachers should be trained; where a new manufacturing plant should be located; what type of work
organization will maximize productivity and minimize absenteeism; what new products should be
developed; or how services can be most effectively distributed. Doctors nurses, and other health
professionals can gain from research showing ethnic differences in responses to pain and
medication or research linking social experience and disease (Brown, 1976). In writing this book, I
have used a variety of research tools and strategies. Individuals can use research to investigate
schools to attend, careers to pursue, or places to live. Throughout this book I will suggest possible
applications of the research and theories we will be considering. As you read the book, you might
ask yourself what are the implications of these ideas for my life, my family, my community, and
my career?
The general importance of social research is highlighted in a report by the National Academy of
Sciences (Adams et al., 1984) that credits social science researchers with inventing information-
generating technologies. Of these, the most important is thesample survey, which includes
household sampling techniques, personal interviews, and questionnaires and data collection in
experimental settings. "The sample survey has become for some social scientists what the
telescope is to astronomers, the accelerator to physicists, and the microscope to biologiststhe
principal instrument of data collection for basic research purposes."
Social scientists, governments, and many private organizations now use the sample survey as their
primary means of collecting information. "The statistical systems of most industrialized nations,
which provide information on health, housing, education, welfare, commerce, industry, etc., are
constructed largely on the methodology of sample surveys" (Adams et al., 1984, p. 65). The data
and research findings generated by these techniques are useful in many walks of life. "Our notions
about ourselves and each otherabout racial differences, for example, or the nature of childhood
have been radically transformed by the dissemination of social and behavioral research findings,"
and "it is fair to say that as a result of such research Americans today have a different view of
human behavior and social institutions than their parents did a generation ago" (Adams et al.,
1984, p. 89).
Race and ethnicity is probably the area in which behavioral and social science research has caused
the greatest change in perception. For example, there has been a dramatic shift through the
twentieth century in the Encyclopaedia Britannica'sdescription of the mental abilities of blacks. In
1911 the encyclopedia stated: "Mentally, the negro is inferior to the white." By 1929, based on
research obtained in the intervening years, it read: "There seem to be no marked differences in
innate intellectual power." By 1974 the encyclopedia attributed differences in scores on
intelligence tests to environmental influences that "reflect persistent social and economic
discrimination" (Adams et al., p. 86).
Statement of the problem / rationale
Defining the problem involves selecting a general topic for research, identifying a research
question to be answered, and defining the concepts of interest. Individuals have personal research
questions, and social researchers have more general ones. You may wonder, for example, how you
will get your first job. By the time you've finished a good literature review, you should be ready to
state your problem more clearly, and also to rule out nonsense questions. Any research result, no
matter how carefully obtained, is not worth the effort if it answers the wrong question. By "wrong"
we mean questions whose answers don't aid explanation of any social phenomenon. When people
believed behavior could be changed by boring holes in skulls to release demons, reasonable
research questions might have been, "Which side of the head do we bore?" "How large a hole
should we make?" While there are no simple rules to identify nonsense questions, your literature
review should have focused you interest on questions that matter.
As you begin to state more accurately what you intend to investigate, your problem will be
narrowed from your early, broader questions. For example, instead of asking "What factors are
related to juvenile delinquency?" your literature review may have clarified that "peer-group
influence" is the really crucial factor in juvenile delinquency. The general question has become
more specific and may be stated in terms of variables.
Variables are concepts that take on different values or states. The variable "social class status" may
range from upper upper to lower lower, or it may have a variety of other values. Religious
affiliation may be Catholic, Baptist, and so on, each of which is a different value, state, or category
of the variable "religious affiliation."
An important question is whether the purpose of the research is simply to describe phenomena or
to explain phenomena. If explanation is the purpose, then designating some variables as
independent and others as dependent becomes useful. Independent variables are the presumed
causes or explanatory factors, and dependent variables are the presumed effects, outcomes, or
phenomena to be explained.
Objectives of the study
We have to find resources containing or connecting you to one or both of these forms of
commonly sought numeric information in the social sciences.
The relationship between theory and research is a two-way street. Each affects and is in turn
affected by the other. We call it serendipity when further investigation is stimulated by
unanticipated or anomalous results, apparently inconsistent with prevailing theory or other
established findings. An example comes from Merton's study of the social organization of a small
suburban housing community. Among other findings, this study revealed a surprisingly high
incidence of social participation in voluntary organizations among parents of infants and young
children. The parents said this was because numerous teenagers could provide baby-sitting
services. However, inspection of that community's age distribution showed a very small proportion
of teenagers in the fifteen-to-nineteen bracket. These apparently contradictory findings were
explained when further investigation showed that parents in a small, cohesive community were
more willing than those in larger communities to use baby-sitters from the thirteen-to-fifteen age
group.
Research question or hypothesis
A descriptive hypothesis is a tentative statement about the nature or frequency of a particular group
or behavior. Preliminary decisions about measurement and the kinds of variables involved in a
study prepare you to write specific hypotheses. A hypothesis is a statement of expected outcome of
research. In single-variable problems, the hypothesis states the expected occurrence or form of that
variable.
For instance, the statement "People find jobs through various means, including answering
advertisements and being referred by friends" is a descriptive hypothesis that can be verified by
research. An explanatory hypothesis tries to link one variable (such as a behavior) with another
variable, as in the statement "How someone finds a job is related to income in that job."
Researchers try to design studies to test whether or not their hypotheses are true and to rule
out rival hypotheses (that is, explanations that compete with the original hypothesis). They reason
the way a detective does in trying to figure out who the murderer is. The data uncovered in a study
may support the original hypothesis, refute it, support a rival hypothesis, or suggest conditions
under which the hypothesis is supported. This method of reasoning goes beyond the testing of
academic social science hypotheses. It is widely used by market researchers to test ideas for
designing and selling new products or services, by political candidates seeking to understand
public sentiments, and by policy makers developing new social programs.
One source of hypotheses for a research study may be social theory, which can be defined as a
system of orienting ideas, concepts, and their relationships that provide a way of organizing the
observable world. The interplay between theory and research is shown in Figure 2.1. In this model,
theories suggest hypotheses, which lead to observations, which produce research findings, which,
in turn, may modify theories, generate new hypotheses, and so on. Scientists may step into this
circle at any point and work to advance knowledge
Deduction refers to reasoning from the general to the specific. A general theoretical statement is
confirmed or refuted by testing specific hypotheses deduced from it.Induction refers to reasoning
from the particular to the general. The truth of a theoretical statement becomes increasingly
probable as more confirming evidence is found. There is always the possibility of a disconfirming
case, however.
Delimitation of the study
While distorting influences are usually seen as coming from moralistic, prejudicial, or political
beliefs, they may also stem directly from "scientific" theory. Remember that medical scientists
once believed in bleeding as a treatment, and astronomers once believed the sun revolved around
the earth. A substance called phlogisten, which supposedly caused things to burn, and another
called ether, though which light waves supposedly traveled, were studied by scientists for decades
before being abandoned as nonexistent. In the same manner some concepts utilized by social
scientists, such as attitudes, norms, and social class, have been attacked as useless. Concepts and
theories are constantly being developed, revised, and abandoned. No theory, concept, or belief is
above questioning. Today's truths may become tomorrow's myths.
Thus, the selection of a research topic involves more than merely "What do I want to study?" This
selection has potential social, political, theoretical, practical, and ethical consequences. The choice
of your research problem -- the first stage of any research project and one that influences later
stages -- deserves thoughtful consideration.
Literature review
The next step is to review the existing literature to determine what is already known about the
problem. Prior work may offer general descriptions, raise some key questions, discuss the
strengths and limitations of measures that have already been tried, and suggest profitable lines of
further research. More and more libraries offer computerized literature searches that speed up the
review process.
Doing a literature review before you begin your investigation enables you to take advantage of the
unique human capacity to pass on detailed written information from one generation to another.
Reading all the knowledge that's accumulated so far on the problem you want to study can be time-
consuming and even tedious. But careful evaluation of that material helps make your investigation
worthwhile by alerting you to knowledge already gained and problems already encountered in your
areas of interest.
A literature review amounts to reading available material on a given topic, analyzing and
organizing findings, and producing a summary. There are many sources for literature reviews,
including journals of general interest in each discipline, such as the American Political Science
Review. There are also journals for specific topics such as theLeadership and Organization
Development Journal. Governments publish great quantities of data on many topics. The United
Nations and the United States Government Printing Office are two major sources. In addition,
businesses and private organizations gather and publish information you might find useful. For
certain problems you may want to search through popular or non-scholarly periodicals as well.
While it's customary to include only data from sources that actually research the problem in a
precise fashion, articles in more popular sources may provide interesting insight or orientations.
Talking to knowledgeable people may also give you information that helps you formulate your
problem.
Thoroughness is the key. Most libraries have staff trained in information retrieval who can help
find sources and suggest strategies to review the literature. The Internet, of course, now allows
easy access to limitless information on given topics. Thoroughness in your review means not only
finding all current publications on a topic but locating earlier writing as well. There's no easy rule
for how long ago literature was published on your topic. The time varies from problem to problem.
A useful way to locate past as well as current writing is to begin with the most current sources
likely to contain relevant material. Then, follow these authors' footnotes and bibliographies. At
some point in this search you'll find the material is beginning to be only peripherally related to
your current interest or that authors claim originality for their work.
Of course, doing a good literature review is easier when you know a great deal about the subject
already. In such a case you'd probably be familiar with publications and even other people who do
research in your area of interest. But for the novice, efficient use of library/Internet services and
organizing how they check sources are especially important skills.
Having located literature, keeping a checklist of useful information will help you read each source.
You might ask yourself, particularly for research articles:
1. What was the exact problem studied?
2. How were the topics of interest defined?
3. What did the authors expect to find?
4. How were things measured?
5. What research did this author cite? Have you read it?
6. Who were the subjects of study?
7. What do the results show?
8. Do the data presented agree with the written conclusions?
9. What were the limitations of the study?
A thorough literature review should demonstrate that you've carefully read and evaluated each
article or book. Because research reports can be tedious and difficult to understand for new
researchers, many tend to read others' conclusions or summaries and take the author's word that the
data actually support the conclusions. Careful reading of both tables and text for awhile will
convince you they don't always agree. Sometimes data are grossly misinterpreted in the text, but on
other occasions authors are more subtle. Consider, for example, the following statements:
Fully 30 percent of the sample said they did not vote.
Only 30 percent of the sample said they did not vote.
The percentage is the same, but the impression conveyed is decidedly different. Reading the actual
data before accepting the author's conclusions will help prevent some of these errors of
interpretation from creeping into your own research.
Research design
Research Method qualitative: Qualitative research methods are designed to help researchers
understand people and the social and cultural contexts within which they live. The goal of
understanding a phenomenon from the point of view of the participants and its particular social and
institutional context is largely lost when textual data are quantified. (Meyers 1997)
Researchers then decide on a design for the study that will allow them to eliminate one or more of
the hypotheses. Research design is the specific plan for selecting the unit of analysis; determining
how the key variables will be measured; selecting a sample of cases; assessing sources of
information; and obtaining data to test correlation, establish time order, and rule out rival
hypotheses.
Collecting the Data
Sociologists gather information in a variety of ways, depending on what they want to investigate
and what is available. They may use field observations, interviews, written questionnaires, existing
statistics, historical documents, content analysis, orartifactual data. Each of these methods will be
discussed briefly in the next section.
Analyzing the Data
Once the data are collected, they must be classified and the proposed relationships analyzed. Is a
change in the independent variable indeed related to a change in the dependent variable? Can time
order be established? Are alternative explanations ruled out?
Data collection
Analysing text and documents
Interviews
Recording and transcribing
Data analysis strategies
Research can also generate further research concerned with developing measurement tools. In the
previous chapter we noted that researchers are interested in identifying categories in which a
particular phenomenon belongs. Measuring phenomena with our senses alone is often difficult, if
not impossible. Just as development of the telescope was as great help to the field of astronomy,
social scientists have found it necessary to develop scales to measure such concepts as attitude, IQ,
economic status, and group interaction processes. While such activities may not directly build or
test a theory, the ability to identify and measure phenomena is an important step in that direction.
Finally, a look at the research and methodology journals reveals a substantial number of articles
dealing with the properties and utility of various statistical techniques. While much of this literature
may seem foreign and irrelevant to those new to research, the development of statistical techniques
for describing and analyzing phenomena is an important area of inquiry for the researcher. Without
going into a lengthy discussion of statistics, remember that theories are symbolized by language.
Because mathematics is the most universal, well-developed, and specific language we have, its
applicability for describing social phenomena is a major interest for many researchers.
Conclusion
The National Academy study concludes that basic social science research should be thought of as
"a long-term investment in social capital" and that "the benefits to society of such an investment are
significant and lasting, although not immediate or obvious. A steep reduction in the investment may
produce short-run savings, but it would be likely to have damaging longterm consequences for the
well-being of the nation and its citizens" (Adams et al., p. 4).
Recommendations
It's important that after you finish your reading, you're able to write your literature review in a way
that's clear, organizing what you know about the content and methods used to study your problem.
You may find it helpful to record information about each source on a separate card or piece of
paper so that information can later be reshuffled, compared, and otherwise reorganized. Note in
most journal articles that what probably began as a long literature review is usually condensed on
the first few pages of the research report, explaining previous research on the problem and how the
current study will contribute. You, too, want to add to this growing body of knowledge we call
social science by a creative summary of what's been accomplished by others as well as by your own
research.
Bibliography
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Classroom Activity/ Example
Impacts of Agricultural Income Tax in Pakistan
INTRODUCTION
Government of Pakistans tax revenue was 10% of GDP which is low compared to neighboring
countries. In 2010-11 the fiscal deficit increased to 6.6% of GDP, and financing the fiscal deficit
has shifted towards bank financing (such as the State Bank of Pakistan). In 2011, the Planning
Commission and the Government of Pakistan released the Framework for Economic Growth
which aims to achieve sustained economic growth of around 7% in order to successfully
absorb new workers. Achieving such a target will require fiscal reforms such as reducing the
deficit.
Deficit reduction can be achieved by increasing the tax base, which has reopened the debate about
an income tax on agricultural income. Supporters of the tax argue that agriculture in Pakistan
contributes around 20% to GDP yet contribution to tax revenue is very low. Supporters of the tax
also argue that the sector is protected by political interests. Opponents of the tax argue that
agriculture is already subject to indirect taxation because of the pricing structure which is
regulated by the Government.
One method to determine agricultures performance compared to other sectors in the economy is
by comparing the returns to the sector with the payouts made by the sector. This can be done by
calculating an inter-sectoral terms of trade index. In this paper, the inter-sectoral terms of trade
index for agriculture in Pakistan was calculated by comparing the value of exports from the
agriculture to the industrial sector relative to imports from the industrial sector to the agriculture
sector.
The purpose of this paper is first to calculate an updated terms of trade index for agriculture
relative to industry in Pakistan from 2000 till 2010. Therefore, this paper can be considered as an
update to the work done by Aftab et al. (2009). The second purpose of this paper is to
determine the effect of imposing an income tax and agriculture income on Pakistans economy.
Analysis for this was done using a Computable General Equilibrium (CGE) model for Pakistan
which is linked to the Social Accounting Matrix (SAM) of 2007-08 (Debowicz et al.
2012).
Results suggest that the terms of trade declined from 2000 till 2005. In 2006, the terms of trade
index increased sharply which can be attributed to the price increase in certain agriculture
commodities. However, the terms of trade for agriculture have generally remained unfavorable
during this period.
A CGE model for Pakistan was used to simulate the impact of imposing various levels of income
tax on agriculture income. The simulation results provide the expected result that public income
will increase as a result of the tax. Income and consumption of all farm owing households
which pay the tax will decrease by an amount proportional to the tax. Overall, as the public deficit
falls, investment in the economy increases, specifically in the manufacturing, construction, and
cement industries. This is because the income tax has created a situation where agriculture is a less
profitable source of income and people are switching to more profitable sources of non-agriculture
income. Overall investment in the economy increases and the price and output of non-agriculture
commodities generally increases. The simulation results also suggest that this type of income tax
will increase the poverty level of households paying the tax and decrease the poverty level of all
other households. Overall national poverty rate decreases slightly which suggests that this type of
tax can be welfare enhancing if implemented properly.
Background situation
In 2010, the Government of Pakistans tax revenue was estimated to be around 10% of GDP
which is among the lowest in the world. Pakistan has an estimated population of 180 million;
however only around 1% of the population is registered to pay income tax. Currently Pakistan
spends around 25% of government revenue on defense and another 50% on interest and subsidy
payments. This has meant that Pakistan has continued to incur a high deficit. In the last 3 years,
the fiscal deficit was around 6% of GDP and in the year 2010-11 the deficit increased to 6.6%
of GDP. In the last 3 years, financing the fiscal deficit has shifted largely towards bank financing
(including the State Bank of Pakistan). In the fiscal year 2010-11 around half of the fiscal deficit
was funded through bank financing. (IMF 2012).
Continued periods of high deficit are leading to problems such as crowding out of credit for the
private sector, which leads to lower investment. This in turn will affect Pakistans
economic growth which was estimated at 3.7% for the fiscal year 2011-12 in the Pakistan
Economic Survey of 2011-12. In May 2011, the Planning Commission and the Government of
Pakistan released the Framework for Economic Growth which aims to achieve sustained
economic growth. The framework supports a new growth strategy which argues that Pakistan
needs to achieve a growth rate of 7% in order to successfully absorb new entrants into the labor
market. In order to achieve the target rate of 7% growth, the Government of Pakistan will have to
undertake fiscal reforms such as reducing the deficit. This will be difficult because of structural
problems and the expiration of the Stand-By Arrangement (SBA) program with the International
Monetary Fund (IMF) in September 2011. The government has announced a deficit target of
4.7% for the fiscal year 2011-12. (IMF 2012)
Reducing the deficit can partially be achieved by increasing the tax to GDP ratio. Discussions on
how to increase the tax to GDP ratio usually renew the debate over imposition of an agriculture
income tax on Pakistans economy. Supporters of tax on income from agriculture argue that the
sector contributes around 20% to Pakistans GDP, however the contribution to Pakistans tax
revenue is not comparable. According to the Federal Bureau of Statistics, Federal Board of
Revenue, in the fiscal year 2009-10 the agriculture sector contributed around 1% to overall tax
collection. In the same fiscal year, the industrial sector contributed 63% and the services sector
contributed 26% (PILDAT 2011). Supporters also argue that the sector is protected by
political interests. Opponents of the income tax argue that agriculture is already subject to
indirect taxation due to the pricing structure on the market for agriculture production that is
regulated by the government.
One possible way to determine the performance of the agriculture sector relative to other sectors
of Pakistans economy is to analyze the returns to the sector relative to payouts made by the
sector. Specifically, this paper will look at the inter-sectoral terms of trade for the agriculture
sector in Pakistan. The inter-sectoral terms of trade measures the value of exports from the
agriculture sector to another sector and compares that with the imports from the other sector into
the agriculture sector. The terms of trade is essentially a ratio between the value of exports to the
value of imports of a sector. In this paper, the inter-sectoral terms of trade for agriculture in
Pakistan was calculated by comparing the value of exports from the agriculture sector to the
industrial sector with the value of imports from the industrial sector to the agriculture sector. An
unfavorable terms of trade for a sector suggests that the output from that sector is under-valued
relative to output from other sectors.
Calculating the terms of trade requires a comparison of prices across time and markets.
Previously, researchers have used weighted and normal price indices to calculate the terms of
trade. In such cases, price indices are usually calculated using Laspeyres formula which takes
the current value of the base period exports and imports and divides them by the base period
value of the base period exports and imports. This procedure simplifies calculating the terms of
trade as a ratio between a sectors export price index and import price index.
Inter-sectoral terms of trade are an important policy making tool because they reflect patterns of
income distribution across a countrys sectors. Similarly, inter-sectoral terms of trade estimates
over time will reflect growth patterns of that specific sector. If the inter-sectoral terms of trade
estimates are consistently unfavorable, then it will support policy towards improving prices or
production in that sector. Calculating the inter-sectoral terms of trade for agriculture in Pakistan
is important because the government has been accused of supporting one sector over another due
to vested interests. Also worth noting is the fact that many of Pakistans legislators in the
national and provincial assemblies receive a significant proportion of income from agriculture.
Therefore, there is a need for robust estimation of the inter-sectoral terms of trade in agriculture
in order to assist in policy making for Pakistans agriculture sector.
The rest of the paper is structured in the following way. Section III reviews relevant literature on
terms of trade for agriculture in Pakistan. Section IV describes the data and methodology that
was used to obtain the results. Section V presents the results of the terms of trade in agriculture
relative to industry. This section is supported by a discussion which looks at the impact of
imposing an agriculture income tax on Pakistans economy. Specifically this section will
include the results of a simulation from a Computable General Equilibrium (CGE) model which
analyzes the effects of imposing an agriculture income tax on Pakistans economy.
Statement of the problem / rationale
Calculate terms of trade for agriculture in Pakistan from 2000-01 to 2009-10.
Research effect of an imposition on agriculture income tax on Pakistans economy using
CGE Model.
Determine effect on production and income.
Objectives of the study
There are arguments on whether agri income should be taxed or not.
NCA is against this argument and says that agri holdings are too small to generate
taxable income.
Agri is a risky business and heavily depends on natural factors which creates uncertainty
in final output.
No proper insurance of agri output.
Agri sector pays the largest percentage of indirect taxes i.e 42% of all indirect taxes, so
it should not be taxed more.
Literature review
In Pakistan, previous studies about inter sectoral terms of trade either used weighted price
indices to estimate the consumption of goods by both sectors or used estimates that were based
on relative value added. The first such study was done by Lewis and Hussain (1967) and covered
the period between 1951 till 1964. The authors calculated terms of trade estimates for
agriculture and large scale manufacturing using weighted price indices. Separate indices were
calculated for what was then East and West Pakistan. There were three types of commodity
groups consumption, intermediate, and investment goods and wholesale price indices were
used along with a weighting system that reflected inter-sectoral transactions. Net goods
availability was calculated as domestic supply plus imports minus exports. The authors assumed
that consumption of goods from the agriculture and large-scale manufacturing sector was based
on the population of the two sectors. Additionally, another set of weights was calculated which
assumed that 10, 25, and 40 percent lower expenditure on non-agriculture consumption goods in
rural areas compared to urban areas. It was also assumed that intermediate and investment goods
were mostly consumed by the non-agriculture sector.
Weighted price indices for exports from and imports into agriculture and industry were
calculated by multiplying wholesale price index of a commodity with the estimated consumption
level of that commodity by the agriculture or industrial sector. Using this methodology, it could
be assumed that agriculture goods consumed by industry were exports from agriculture, and
industrial goods consumed by the agriculture sector were imports into agriculture.
The results suggest that the gross barter terms of trade estimates for agriculture have declined
from 1951 till 1956. From this period the terms of trade estimates improved until the middle of
the 1960s.
1
This improvement is more prominent for East Pakistan. The improvement in the
performance of the agriculture sector was important during this period because of the effects
of the decline in the price of raw materials in the middle of the 1950s due to the Korean war and
the change in the exchange rate. After 1955, the terms of trade estimates became more favorable
towards the agriculture sector which can be explained by growth in the industrial sector and
a decline in the price of raw materials.
The Lewis and Hussain paper was updated later by Lewis (1970) who considered only the
terms of trade index for agriculture in Pakistan. In the updated methodology, the
commodities were weighted differently due to the increase in production of wheat, purchase of
fertilizer, and purchase of machinery for agriculture production. In the updated estimates, Lewis
found that the terms of trade for agriculture were favorable from 1964 till 1967. After 1967 the
terms of trade estimates declined and became unfavorable. This can be attributed to the increase
in agriculture production during the Green Revolution of the 1960s which decreased agriculture
prices.
The Lewis paper of 1970 was further updated by Gotsch and Brown (1980) who calculated
the terms of trade index using the same methodology. Their findings also suggested a decline in the
terms of trade index for agriculture for the same reasons mentioned above
Kazi (1987) argued against the methodology that was previously used by Lewis and Hussain
(1967), Lewis (1970), and Gotsch and Brown (1980) by stating that the assumption about
the consumption of goods across sectors was not appropriate. Kazi argued that it is
unrealistic to assume that consumption of goods is proportionate to the population. Similarly,
investment goods were unlikely to be used by the agriculture sector and using output only from
the large scale manufacturing sector distorted inter-sectoral trade estimates. Kazi mentioned gas
and electricity as important consumption goods for the agriculture sector which were not used for
the study.
Kazi (1987) used another methodology and calculated the inter-sectoral terms of trade between
1970 and 1982. The new methodology used a weighting system which relied on household
expenditure data from the Households Income and Expenditure Survey (HIES) which was
published by the Pakistan Federal Bureau of Statistics (FBS). The HIES provides data on
consumption of commodities by households which has been disaggregated into urban and rural
areas. The data from the HIES was further disaggregated into percentages of the urban and rural
population employed in the agriculture and non-agriculture sector. This was used to estimate the
consumption of agriculture and non-agriculture commodities by household and by sections of the
population. Kazis results suggested that the inter-sectoral terms of trade were favorable towards
agriculture, however there were fluctuations over time.
Qureshi (1987) criticized the methodology used by Kazi by arguing that the calculated weights
were misleading because they were from retail rather than wholesale prices. Qureshi also noted
that the number of commodities used by Kazi was smaller than the study by Lewis in
1970. Qureshi supported the methodology initially used by Lewis because of its more
comprehensive coverage of commodities. Qureshi calculated inter-sectoral terms of trade from
the period 1951 till 1984 using Lewiss original methodology but with a base year of 1959-60.
Qureshi calculated the barter, income, and single factorial terms of trade.
2
The results
suggest that the terms of trade for agriculture moved up over time from 1951 till 1984. In
between there are periods of decline and sharp fluctuation. Specifically there was a decline in
the barter terms of trade in the 1950s and between 1977 till 1984, while there was an increase
in the terms of trade in the 1960s.
Aftab et al. (2009) used the same methodology used by Qureshi and calculated the inter- sectoral
terms of trade for agriculture in Pakistan for the period of 2000 till 2008. The methodology
compared the value of exports from the agriculture to the industrial sector with the imports from
the industrial to the agriculture sector. Their results suggest that the terms of trade for agriculture
have remained unfavorable throughout this period. Specifically, the terms of trade estimates
declined from 2000 till 2005. In 2006 the terms of trade estimates increased sharply due to the
price increase in certain agriculture commodities. However, overall the terms of trade for
agriculture have remained unfavorable. This paper can be considered as an update to the research
done by Aftab et al.
All of the studies mentioned above used a methodology which used weighted price indices
as a proxy for measuring consumption of goods by the sectors. Other studies use implicit price
indices using value added figures from the national accounts data. This method was used by
Cheong and DSilva (1984) while trying to calculate the inter-sectoral terms of trade from
1960 till 1983. GDP deflators for the agriculture and manufacturing sector were calculated by
dividing current and constant value added. The inter-sectoral terms of trade are a ratio of these
deflators. Results for the terms of trade of agriculture and manufacturing did not decline by a
significant amount during this time. Additionally, the authors argued that the purchasing power
of the farmers improved during this period.
A more recent study calculated the inter-sectoral terms of trade from 1970 till 2008 using the
same methodology of implicit price indices. The results suggest that terms of trade are
consistently unfavorable for agriculture for this period except in 1998-99.
3
This can be
attributed to the fact that the value added of minor crops experienced a sharp increase. Overall,
studies which calculate inter-sectoral terms of trade using implicit price indices cannot be
considered robust and the methodology cannot be considered definitive.
Research design
In this paper, the methodology used for calculating inter-sectoral terms of trade for agriculture in
Pakistan was outlined by Qureshi (1987). However, price data was only obtained for the
commodities that were included in the Social Accounting Matrix (SAM) of 2007-08 for Pakistan
that was developed by Debowicz et al. (2012). All price data was obtained from the Pakistan
Economic Survey and the Agricultural Statistics of Pakistan (see Annex for details). All price
data was converted into a price index with 2000-01 as the base year. This paper can be
considered as an update to the research done by Aftab et al. (2009) and the terms of trade for
agriculture were estimated for the period 2000-2010.
Weights for all of the commodities were obtained from the SAM for Pakistan for 2007-
08. The weight of a commodity can be considered as the share of the commodity in value added of
Pakistans economy. The 2007-08 SAM was created using the Household Income and Expenditure
Survey (HIES) of 2007-08 and the most recent input-output table for Pakistan which dates back to
1990-91. This SAM included all three sectors of the economy, agriculture, industry, and
services. However, the price of commodities in the services sector are not included in Pakistans
official publications, therefore we had to leave out the services sector in our analysis. As
mentioned previously, the inter-sectoral terms of trade in agriculture for Pakistan was done by
comparing exports from the agriculture sector to the industrial sector with imports from the
industrial sector to the agriculture sector. Data limitations mean that we are assuming that there
are only two sectors in the economy and there is no leakage outside these sectors.
Data collection
Data limitations have also enforced another limitation upon the methodology. The SAM of
2007-08 differentiates value added from the agriculture and industry sector across Pakistans
rural and urban population. However, the same cant be said for the services sector. Therefore an
assumption has been made that rural shall refer to agriculture and urban shall refer to industry.
Hence, the weights for value added were adjusted to consider only the agriculture and industrial
sector. The original weights from the SAM of 2007-08 as well as the adjusted weights are
provided in the Annex.
After the adjusted weights were calculated, our next step was to calculate the price indices
for each commodity with a base year of 2000-01. The price index for each commodity was
multiplied by the same commoditys weight to get the value of the commodity in year j. The
value can be calculated using the formula P
n
Q
0
, with the base year value if 2000-01 being P
o
Q
0
.
As mentioned previously, the terms for trade in agriculture can be calculated using
Laspeyres formula which is a ratio of the two indices mentioned above. Therefore:
Irfan Arshad 21
kn
Q P
k
The inter-sectoral terms of trade for agriculture = index of agricultural exports to industry /
index of agricultural imports from industry = (1) / (2) = (3) (
k
P
A
Conclusion
As discussed in the foregoing, agriculture is subjected to direct, indirect and implicit taxes. Its
contribution therefore to total tax revenues must be based on the incidence analysis of all
three which would reveal the huge and oppressive burden of taxes on agriculture.
While increasing dependence on direct taxes would be highly desirable, progression in
agricultural taxation cannot be introduced by the introduction of a general income tax or a
graduated land tax due to ma n y practical problems of a fundamental nature. If equitable
taxation of agriculture is at all desirable, progression in land taxes has to be achieved in an
indirect way. For this purpose, a two-tier system of agricultural taxation, involving a
proportional land tax on the pattern of land revenue and a uniform tax on marketed surplus can
be recommended. Devised in a proper manner, the two-tier system would be equitable,
responsive to changes in income and inflation and easy to implement, manage and operate even
with the present administrative set-up. A uniform rate structure of a tax on marketed output
may prove to be progressive in its impact, if the tax is ultimately paid by the farm sector and if
the marketed surplus varies directly with farm size. There can be little doubt that the two
relationships would largely hold as far as Pakistans agriculture is concerned.
Recommendations
Income tax on agricultural income hurts households producing agricultural
commodities but helps non-agriculture sectors.
Argument in favor of income tax on agriculture in order to increase government
income and reduce deficit.
Government should promote policies which allow for income tax on agriculture
income for large farm owners.
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