Agricultural Economics

Agricultural Economics

The Effects of Exchange Rate Policies Misalignment on the Government's Support Indicators for the Wheat Crop

Document Type : Research Paper

Authors
fatemeh sakhi 1
Seyyed Safdar Hossini 2
Habibollah Salami 3
Saeed Yazdani 3
1 Department of Agricultural Economics, Faculty of Agriculture and Natural Resources, University of Tehran, Tehran, Iran
2 Professor, Agricultural Economics Department, Faculty of Agricultural, University of Tehran, Tehran, Iran.
3 Professor, Agricultural Economics Department, Faculty of Agricultural Economics and Development, University of Tehran, Tehran, Iran.
10.22034/iaes.2024.2014295.2028
Abstract
In this research, the effects of the exchange rate misalignment on the indicators of support for producers and consumers of wheat crop in order to analyze the government's support plans for the agricultural sector in the first to sixth economic development plans. To calculate the exchange rate misalignment, first, the equilibrium exchange rate was estimated using the vector error correction model (VECM) and the real exchange rate was calculated based on the theory of purchasing power parity. Then the effects of exchange rate misalignment on wheat crop support values were investigated. The findings of the research show in no year has the real exchange rate been on the path of balance, and the application of different exchange rate policies has caused it to be overvalued in some years and undervalued in other years. Other results of the research showed that the policies of Iran's agricultural sector, based on the real exchange rate and its equilibrium value in supporting producers through the pricing of agricultural inputs and outputs and the regulation of exchange rate policies, have been unsuccessful. The interests of food consumers have been taken into account instead of the interests of producers, leading to suppressed led to prices and hidden taxes in from producers. However, the period under review has been accompanied by social pressure from the activists of the agricultural sector, sectoral and exchange rate policies with the aim of reducing hidden taxes from farmers. According to the findings of the research, it has been suggested to review the way of applying the specific policies of the agricultural sector and to improve the support of the beneficiaries of this sector, estimating the support of the government's agricultural sector, the equilibrium exchange rate that shows Iran's long-term balance and competitiveness should be considered and put on the agenda of policy-makers.
Keywords
Exchange Rate Misalignment
Consumer Support Estimate (CSE)
Organization for Economic Co-operation and Development (OECD)
Producer Support Estimates (PSE)

Subjects

Afshari, Z. and Siavoshi Zangiani, M. (2020).Real Exchange Rate Misalignment and Diversification of Non-Oil Exports in Iran's Economy. Journal of Economic Analysis of Iran's Development, 7(2): 9-33. (In Farsi)
Amoah, L. and Jesse Aziakpono, M.(2017). Exchange Rate Behavior in Ghana: Is there a Misalignment?. Journal of Developing Areas, 51(4), 261-276.
Atqaee Kordkulaee, M. (2010).Estimating the Equilibrium Exchange Rate and Investigating Its Possible Effect on the Producer Support Index in the Agricultural Sector in Iran. Master's thesis. Faculty of Agriculture, University of Tehran. (In Farsi)
Ayele, G. M. (2022). Real Exchange Rate Misalignment and Economic Growth in East African Least Developed Countries. Journal of Heliyon, 8(11): 11-84.
Baffes, J., Elbadawi, I. and O'Connell, S.(1999). Single-Equation Estimation of the Equilibrium Real Exchange Rate. World Bank.Policy Research Department, Washington, DC.
Bagheri Pormehr, SH.(2022).Extraction of Stable Equilibrium Exchange Rate in Iran's Economy. Journal of Review of Iran's Economic Issues, 9(1): 1-23. (In Farsi)
Barqandan, A. and Najafi, B. (2010). The Effect of Exchange Rate Misalignment on the Index of Support for the Producer of the Agricultural Sector in Iran. Journal of Agricultural Economics Research, 2(1):15-34. (In Farsi)
Ben-Naser, A., Bhattarai, K. and Elheddad, M.(2018). Estimating Equilibrium Real Exchange Rate And Misalignment In An Oil Exporting Country: Libya's Experience. Journal of Developing Areas, 52(4): 249-267.
Bosupeng, M., Dzator, J. and Nadolny, A.(2019). Exchange Rate Misalignment and Capital Flight from Botswana: A Cointegration Approach with Risk Thresholds. Journal of Risk and Financial Management, 12(2): 1-26.
Cahill, C. and Legg, W. (1990). Estimation of Agricultural Assistance Using Producer and Consumer Subsidy Equivalents: Theory and Practice. OECD Economic Studies, 13: 13-42.
Cheng, F. and Orden, D. (2005). Exchange Rate Misalignment and Its Effects on Agricultural Producer Support Estimates: Empirical evidence from India and China. International Food Policy Research Institute. Washington, DC.
Cheng, F. (2005). Effects of Exchange Rate Misalignment on Agricultural Producer Support Estimates: Empirical evidence from India and China. Ph.D. Thesis. Faculty of Virginia Polytechnic Institute, Blacksburg University, Virginia.
Cheng, F. and Orden, D. (2007). Exchange Rate Alignment and Producer Support Estimates (PSEs) for India. Journal of Agricultural Economics, 36(2): 233-243.
Comunale, M. (2017).  Dutch Disease, Real Effective Exchange Rate Misalignments and Their Effect on GDP growth in EU. Journal of International Money and Finance, 73: 350–370.
Conrad, D. and Jagessar, J. (2018). Real Exchange Rate Misalignment and Economic Growth: The Case of Trinidad and Tobago. Journal of Economies, 6(52): 1-23.
Cottani, J.A., Cavallo, F.D. and Khan, S. (1990). Real Exchange Rate Behavior and Economic Performance in LDCs. Journal of Economic Development and Cultural Change, 39: 61-76.
Dollar, D. (1992). Outward-Oriented Developing Economies Really Do Grow More Rapidly: Evidence from 95 LDCs, 1976-85. Journal of Economic Development and Cultural Change, 40(3): 545466.
Edwards, S. (1989). Real Exchange Rates, Devaluation and Adjustment: Exchange Rate Policy in Developing Countries. Journal of Development Economics, 36(2): 420-444.
Elbadawi, I.(1994). Estimating Long-run Equilibrium Real Exchange Rates. Williamson (ed.), Estimating Equilibrium Exchange Rates. Institute for International Economics, Washington, DC.
Elbadawi, I. and Soto, R. (1994). Capital Flows and Equilibrium Real Exchange Rates in Chile. Policy Research Working Paper 1306, The World Bank, Washington, DC.
Fidora, M., Giordano, C. and Schmitz, M. (2021). Real Exchange Rate Misalignments in the Euro Area. Open Economies Review, 32: 71-107.
Hodrick, R. & Prescott, E.(1997). Postwar US Business Cycles: An Empirical Investigation. Money Credit Bank, 29, 1–16.
Hosseini, S.S., Gilanpour, A. and Iravani, S. (2010).The Effect of Exchange Rate Misalignment on the Indicators of Support for Wheat Producers. Journal of Agricultural Economics and Development, 24(3): 393-403. (In Farsi)
Hosseini, S.S. (2012). Investigating the Effect of Exchange Rate Policy Misalignment on Indicators of Support for Iran's Agriculture Sector. Quarterly of Economic Strategy, 1(1): 8-46. (In Farsi)
Kazerooni, A., Asgharpour, H. and Mozafari, Z. (2016). The Effect of Misalignment and Instability of the Exchange Rate on the Export of Agricultural Products of Iran. Journal of Agricultural Economics Research, 8(2):173-197. (In Farsi)
Krueger, A., and Schiff, M. and Valdes, A. (1988). Agricultural Incentives in Developing Countries: Measuring the Effect of Sectoral and Economy-Wide Policies. Journal of World Bank Economic Review, 2(3):255-72.
Kvasha, S., Luka, O. and Zhemoyda, O .(2006). Effects of Exchange Rate Misalignment on Agricultural Producer Support Estimates for Ukraine. Abstract to a contributed paper presented at the IAMO Forum. Halle, Germany, June 29-30.
Mahraddika, W. (2020). Real Exchange Rate Misalignments in Developing Countries: The Role of Exchange Rate Flexibility and Capital Account Openness. Journal of International Economics, 163: 1-24.
Mousavi, SH. (2019). Real Imbalance of Exchange Rate and Currency Crisis in Iran's Economy. Master's thesis. Faculty of Literature and Human Sciences, University of Mohaghegh Ardabili. (In Farsi)
Mozayeni, A.H. and Ghorbani, S. (2019). Investigating the Trend and Nature of Real Exchange Rate Misalignment in Iran's Economy. Journal of Economic Research, 54(1): 173-207. (In Farsi)
OECD.(2007). Agricultural Policis in Non-OECD Countries: Monitoring and evaluation, Pris.    
_________. (2016). OECD´S Producer Support Estimated and related indicators of agricultural support. Interpretation and use (the PSE manual).
Orden, D., Mullen, K., Sun, D. and Gulati, A. (2004). Agricultural Producer Support Estimates for Developing Countries Measurement Issues and Evidence from India, Indonesia, China, and Vietnam. International Food Policy Research Institute, Washington D.C.
Sakhi, F., Hosseini, S.S., Salami, H. and Yazdani, S. (2022). Factors Affecting the Real Exchange Rate in Iran's Economy. Journal of Agricultural Economics and Development, 30(4): 107-141.
Sarvi, M. (2017). Stabilizing self-sufficiency in wheat production; Barriers and solutions. Committee of resistance economy, Economic Commission of the Islamic Council.
Senay, O. and Sutherland, A. (2019). Optimal Monetary Policy, Exchange Rate Misalignments and Incomplete Financial Markets. Journal of International Economics, 117: 196–208.
Williamson, J.(1994). Estimating Equilibrium Exchange Rates, Institute for International Economics, Washington, DC.