The Structural Shocks Effect of Real Exchange Rate on Trade Balance of Iran Agricultural Sector Using the SVAR Model

Subject Areas : Agricultural Economics Research

Mostafa Baniasadi ¹ , Sahar Ahmadi ²

1 - Department of Agricultural Extension and Education, Faculty of Agriculture, Bu-Ali Sina University, Hamedan, Iran.
2 - Department of Agricultural Extension and Education, Faculty of Agriculture, Bu-Ali Sina University, Hamedan, Iran.

Received: 2019-11-26 Accepted : 2023-02-26 Published : 2023-02-20

Keywords: Agricultural Sector, SVAR Model, Trade balance, Structural shocks,

Abstract :

Introduction: Given the importance of identifying the relationship between real exchange rate and trade balance in the elaboration and accurate implementation of trade policies in the agricultural sector, in this study, the effect of real exchange rate structural shocks on the balance of trade in Iranian agricultural sector was studied. Materials and Methods: In order to examine the systematic pattern of trade balance reaction to real exchange rate shock, Structural Vector Autoregressive method was used during the period (1992-2016). Findings: The results of the model estimation show that real exchange rate shocks initially and in the first year have a slight improvement in the agricultural trade balance. But in the second and third year after the shock, the agricultural sector trade balance worsens. Also, the effect of the shock of the real exchange rate has been fully adjusted since the sixth year onwards and the trade balance of the agricultural sector returns to its equilibrium trend. Therefore, exchange rate shocks and a sudden decline in the value of the national currency do not have a significant effect on the improvement of the long-term trend of the trade balance of the agricultural sector. Conclusion: It is suggested to improve the trade balance of the agricultural sector, instead of relying on the increase in competitiveness due to the increase in the exchange rate, attention should be paid to other influencing variables such as investment and production in the agricultural sector, transfer of knowledge and technology, and adjustment of restrictions caused by climate changes.

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