Abstract
The supply response has become more important and crucial research agenda associated with agricultural
growth in Pakistan since the introduction of a series of policy reforms in agriculture sector. The extent to which
farmers respond to economic incentives is, therefore central concern to policy makers. This underlines the
importance of supply response analysis from time to time to assess the impact of incentives and adopted policies
on agricultural production and to understand as to what possible adjustments can be made to improve or redesign
policies in the changed scenario.
This paper estimates the supply response of wheat in all the agro-ecological zones in Punjab using the modern
technique of cointegration. The recent research has shown that most time series data are often non stationary
and its analysis through OLS leads to spurious results. Therefore, econometric technique of cointegration was
used to avoid the problems. When combined with Error Correction Model (ECM), it offers a means of consistent
estimates of both short- and long-run supply elasticties. Our unit root analysis suggests that underlying data
series are most likely non-stationary. Subsequently, the presence of long-run relationship underlying the supply
response model was examined. The Johansen multivariate cointegration approach indicates the presence of a
cointegrating relationship in the supply response model. Inter-zonal comparison of supply response indicates
different elasticities for each zone. Wheat acreage is significantly influenced by price of wheat, and other
competing crops such as cotton and sugarcane. Among the non-price factors irrigation and rainfall has a positive
effect on wheat acreage in the short-run. The wheat supply elasticities are found to be inelastic both in the shortand long-run. The long-run own-price acreage elasticities were 0.53, 0.46 and 0.49 in cotton, rice and mixed
zones respectively
