The Effect of Exchange Rate on the Iran’s Pharmaceutical Industry Balance: Vector error Correction Approach
Subject Areas : medical documentssara Masoomzadeh 1 , mehdi Shirafkan 2
1 - Master of Economic Sciences, University of Tabriz,Iran
2 - Lecturer, Department of Economics and Chabahar Maritime University, Chabahar, Iran
Keywords: exchange rate, Pharmaceutical industry, Vector Error Correction and Iran, Balance of Payments,
Abstract :
Introduction: The effect of exchange rate fluctuations on the balance of payments is very important in economic literature. Pharmaceutical is one of the sub-sections of the balance of payments. Methods: By using vector error correction model, this paper seeks to identify the effect of exchange rate changes on the balance of payments by evaluation the existence of J-Curve in Pharmaceutical industry over the period of 1991 to 2012. Results:The results show the existence of J curve in Iran'sPharmaceutical industrybalance of payments. It means that exchange rate appreciation has reduced Pharmaceutical industrybalance of payments in the first period but after a period it has increased Pharmaceutical industry revenues and improved its balance of payments. According to the analysis of variances of export and import functions the pharmaceuticalindustryhas highly been affected bychanges in exchange rate. 0.19 And 0.016 Changes in these functions have been caused by exchange rate changesand the balance of payments is more sensitive to changes inforeign income.The rate of effectiveness of the income variation is 0.25. Conclusion:The increase in the exchange rate has improved the pharmaceutical industry trade balance of the country in the last periods of shocks. Also, changes in gross domestic product have had the greatest impact on the fluctuation of Iran's pharmaceutical trade balance.
1- Akay G, Cifter A, Teke O. Turkish tourism, exchange rate and income, Tourism Economics, 2015; 8: 1-21.
2- Akhbari M, Khoshbakht A. Trade Balance Dynamics: A study of the J-Curve of Iran's business relationship with Germany, Journal of Economic Research, 2006; 74: 123- 160. (Persian)
3- Anil K, Thomas C. Nominal effective exchange rate and trade balance adjustment in South Asia countries, Journal of Asian Economics, 2002; 13: 371-383.
4- Barouni M, Jalaei A, Jafari S. Impact of exchange rate uncertainty on imports of medical and pharmaceutical products in Iran, Journal of Health and Development, 2016; 5(1): 13- 23.
5- Boyd D, Caporale GM, Smith R. Real exchange rate effects on the balance of trade: Cointegration and the Marshall–Lerner condition, International Journal of Finance and Economics 2001; 6: 187–200.
6- Cheng K, Kim H, Thompson, H. The real exchange rate and the balance of trade in US tourism, International Review of Economics and Finance, 2013; 25, 122-128.
7- Bahmani-Oskooee M. Devaluation and the J-Curve: Some evidence from LDC, The Review of Economics and Statistics, 1985; 67, 500–504.
8- Bahmani-Oskooee M. Devaluation and the J-curve: Some evidence from LDCs: Errata, The Review of Economic and Statistics, 1989; 71, 553-554.
9- Bahmani-Oskooee M, Brooks TJ. Bilateral J-curve between US and her trading partners, Weltwirtschaftliches Archiv, 1999; 135(1): 156–165.
10- Bahmani- Oskooee M, Harvey H. US- Singapore Commodity Trade and the J- Curve, Asian Economic and Finance Review, 2014; 4 (10); 1473-1484.
11- Haynes S, Stone J. Impact of the terms of trade on the U.S. trade balance: A reexamination, Review of Economics and Statistics, 1982; 64: 702–706.
12- Hsing Y. A study of the J-Curve for seven selected Latin American countries, Global Economy Journal, 2008; 8: 4- 21.
13- Himarios D. The effects of devaluation on the trade balance: A critical view and reexamination of Miles’s (New Results), Journal of International Money and Finance, 1985; 4: 553–563.
14- Junz HB, Rhomberg RR. Price- competitiveness in export trade among industrial Countries, American Economic Review, 1973; 63: 412–418.
15- Khodadadi MR, Panahi H, Faridfathi M, Masoomzadeh S. The effect of exchange rate on the Iran’s balance of sports industry. The first industrial conference in Iran, Tabriz University; 2014.
16- Laffer AB. Exchange rates, the terms of trade, and the trade balance. Effects of exchange rate adjustments, Washington, Treasury Department, OASIA Res; 1976.
17- Leonard G, Stockman AC. Current accounts and exchange rates: A new look at the evidence, NBER Working Paper, 2001; 83(61): 1-24.
18- Miles MA. The effects of devaluation on the trade balance and the balance of payments: Some new results, Journal of Political Economy, 1979; 87(3): 600–620.
19- Magee SP. Currency contracts, pass through and depreciation, Brooking Papers on Economic Activity, 1973; 1: 303–325.
20- Onafowora O. Exchange rate and trade balance in East Asia: Is there a J- Curve? Economics Bulletin, 2003; 5: 1–13.
21- Rajabian MA, Salimifar M. Effect of real exchange rate on non- oil trade balance (experimental comparison of Iran and Turkey), Strategic Quarterly, 2015; 24(77): 275- 294.
22- Mortazavi A, Zamani O, Noori M, Nader H. Investigation of effect of exchange rate volatility on Iran’s pistachio export, Journal of Economics and Agricultural Development, 2012; 25(3): 347-54.
23- Panahi H, Masoomzadeh S, Razaghi S. The effect of exchange rate on the Iran’s tourism balance, Applied Theories of Economics, 2017; 4(2): 127- 142.
24- Salant M. Devaluations improve the balance of payments even if not the trade balance, effects of exchange rate adjustments, Washington, Treasury Department, OASIA Res; 1976.
25- Sadeghi s, Karimi Z, Karbor R, Barzegar M.The real exchange rate and the balance of trade in the automotive industry in Iran, Journal of Economic and Management, 2014; 3(10): 42-50.
26- Tayyebi K, Yazdani M, Khanzadi A. Iranian trade balance and dynamics of J-curve mechanism in conditions of uncertainty, Journal of Money and Economics, 2010; 3(1): 93- 114.
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1- Akay G, Cifter A, Teke O. Turkish tourism, exchange rate and income, Tourism Economics, 2015; 8: 1-21.
2- Akhbari M, Khoshbakht A. Trade Balance Dynamics: A study of the J-Curve of Iran's business relationship with Germany, Journal of Economic Research, 2006; 74: 123- 160. (Persian)
3- Anil K, Thomas C. Nominal effective exchange rate and trade balance adjustment in South Asia countries, Journal of Asian Economics, 2002; 13: 371-383.
4- Barouni M, Jalaei A, Jafari S. Impact of exchange rate uncertainty on imports of medical and pharmaceutical products in Iran, Journal of Health and Development, 2016; 5(1): 13- 23.
5- Boyd D, Caporale GM, Smith R. Real exchange rate effects on the balance of trade: Cointegration and the Marshall–Lerner condition, International Journal of Finance and Economics 2001; 6: 187–200.
6- Cheng K, Kim H, Thompson, H. The real exchange rate and the balance of trade in US tourism, International Review of Economics and Finance, 2013; 25, 122-128.
7- Bahmani-Oskooee M. Devaluation and the J-Curve: Some evidence from LDC, The Review of Economics and Statistics, 1985; 67, 500–504.
8- Bahmani-Oskooee M. Devaluation and the J-curve: Some evidence from LDCs: Errata, The Review of Economic and Statistics, 1989; 71, 553-554.
9- Bahmani-Oskooee M, Brooks TJ. Bilateral J-curve between US and her trading partners, Weltwirtschaftliches Archiv, 1999; 135(1): 156–165.
10- Bahmani- Oskooee M, Harvey H. US- Singapore Commodity Trade and the J- Curve, Asian Economic and Finance Review, 2014; 4 (10); 1473-1484.
11- Haynes S, Stone J. Impact of the terms of trade on the U.S. trade balance: A reexamination, Review of Economics and Statistics, 1982; 64: 702–706.
12- Hsing Y. A study of the J-Curve for seven selected Latin American countries, Global Economy Journal, 2008; 8: 4- 21.
13- Himarios D. The effects of devaluation on the trade balance: A critical view and reexamination of Miles’s (New Results), Journal of International Money and Finance, 1985; 4: 553–563.
14- Junz HB, Rhomberg RR. Price- competitiveness in export trade among industrial Countries, American Economic Review, 1973; 63: 412–418.
15- Khodadadi MR, Panahi H, Faridfathi M, Masoomzadeh S. The effect of exchange rate on the Iran’s balance of sports industry. The first industrial conference in Iran, Tabriz University; 2014.
16- Laffer AB. Exchange rates, the terms of trade, and the trade balance. Effects of exchange rate adjustments, Washington, Treasury Department, OASIA Res; 1976.
17- Leonard G, Stockman AC. Current accounts and exchange rates: A new look at the evidence, NBER Working Paper, 2001; 83(61): 1-24.
18- Miles MA. The effects of devaluation on the trade balance and the balance of payments: Some new results, Journal of Political Economy, 1979; 87(3): 600–620.
19- Magee SP. Currency contracts, pass through and depreciation, Brooking Papers on Economic Activity, 1973; 1: 303–325.
20- Onafowora O. Exchange rate and trade balance in East Asia: Is there a J- Curve? Economics Bulletin, 2003; 5: 1–13.
21- Rajabian MA, Salimifar M. Effect of real exchange rate on non- oil trade balance (experimental comparison of Iran and Turkey), Strategic Quarterly, 2015; 24(77): 275- 294.
22- Mortazavi A, Zamani O, Noori M, Nader H. Investigation of effect of exchange rate volatility on Iran’s pistachio export, Journal of Economics and Agricultural Development, 2012; 25(3): 347-54.
23- Panahi H, Masoomzadeh S, Razaghi S. The effect of exchange rate on the Iran’s tourism balance, Applied Theories of Economics, 2017; 4(2): 127- 142.
24- Salant M. Devaluations improve the balance of payments even if not the trade balance, effects of exchange rate adjustments, Washington, Treasury Department, OASIA Res; 1976.
25- Sadeghi s, Karimi Z, Karbor R, Barzegar M.The real exchange rate and the balance of trade in the automotive industry in Iran, Journal of Economic and Management, 2014; 3(10): 42-50.
26- Tayyebi K, Yazdani M, Khanzadi A. Iranian trade balance and dynamics of J-curve mechanism in conditions of uncertainty, Journal of Money and Economics, 2010; 3(1): 93- 114.