The Effect of Exchange Rate Fluctuations on Iran’s Agricultural Trade Balance

Document Type : Research Paper

Authors

1 Associate Professor in Agricultural Economics, University of Tabriz.Tabriz.iran.

2 Granduated from the Department of Agricultural Economics ,Tabriz university.Tabriz.iran

3 Ph.D. Student. Department of Agricultural Economics ,Tabriz university.Tabriz.iran

Abstract

The purpose of this study is to investigate the effect of exchange rate fluctuations on agriculture trade balance of Iran. The required data were collected over 1998-2017 from the Iran's Central Bank, Customs, Statistics Center and the International Monetary Fund. GARCH family models were used to investigate real effective exchange rate fluctuations. ADF, PP, KPSS, GLS-DF unit root tests were applied. The results showed that the variables were stationary at the first order difference. The conditional mean equation was estimated for the ARCH effect was tested. The results indicated that the exchange rate variable had a non-ARCH effect, meaning that good and bad news of the same size had a different effect on the trade balance. Nonlinear ARCH models were applied to express the asymmetric effect on the trade balance. Based on the results of the EGARCH model was selected as a suitable model. The findings confirms that the effect of increasing and decreasing of the real effective exchange rate shock is (0.41) and (-0.87) respectively. In the following, the ARDL model for the relationship of Iran's trade balance with the eight major trading partner countries (including Germany, China, India, Turkey, Iraq, Afghanistan, South Korea and the United Arab Emirates) were utilized to examine short-term and long-term effects. The results of Band F statistics in ARDEL model indicates existence of a long-run equilibrium relationship between Iran's agricultural trade balance with Iran's GDP variables, GDP of Iran's major trading partners, real effective exchange rate and its fluctuations. This is consistent with theoretical foundations that the real effective exchange rate and GDP of the trading partner countries have positive and significant effects on Iran's agricultural trade balance. The results also showed that real effective exchange rate fluctuations had a significant negative effect on Agricultural trade balance in the long-run, but it did not have a significant effect in the short-run.

Keywords


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