Aggregate Supply Response in Algerian Agriculture: The Error Correction Model Applied to Selected Crops

Abstract

This paper examines aggregate supply response of 19 selected crops in Algerian agriculture during the 1966-2018 period by employing cointegration analysis and error correction model (ECM). It tests whether there has been a long-run equilibrium relationship between agricultural outputs and prices, besides a confirmation about the responsiveness of agricultural supply to economic incentives (prices). Findings indicate that the long-run elasticities of all selected crops with respect to prices are statistically significant and mostly low, whereas short-run elasticities are lower, which appeals to the adequacy of adjustment to economic incentives. Furthermore, the results of the ECM confirmed the positive responsiveness to prices with differential rates of adjustment for selected crops, ruling out the applicability of a presumed perverse supply response in Algerian agriculture.