Abstract
This paper attempts to measure the contribution of investment in major sectors, i.e., Agriculture & Allied, Industry and Service sectors in economic growth of Bihar by decomposing their contribution with the help of the methodology used by Jalava and Pohjola [10]. A set of structural relations has been formulated to interlink growth of these sectors and role of investment. Variables in these structural relations were first looked into for stationarity of the series on the basis of Augmented Dicky-Fuller test; and structural relations have been estimated using the Ordinary Least Square (OLS) to study the contribution of investment in Agriculture & Allied sector in the overall growth rate of economy. The study brings out structural relations interlinking growth in Agriculture & Allied, Industry, and Service sectors. Estimated results indicate strong influence of Agriculture & Allied sector on Industry and Service sectors. Besides, crowding - in effect of public investment on private investment in Agriculture & Allied sector was also established. Finally, alternate simulation scenarios have been examined that support to pursue policy of public sector investment in Agriculture & Allied sector. Effect of pursuing policy of augmenting public investment in Agriculture & Allied sector lead to increase in sectoral as well as aggregate growth rate in GDP at a feasible and manageable within limits of the overall government expenditure, thus it is rational - more so, in light of providing food security.