The Effect of Exchange Rate Uncertainty on Iranian Saffron Exports

One of the fundamental problems of Iran’s economy is its dependence on incomes gained from oil and oil products to get rid of which different policies and solutions always are considered by the country’s development plans. Increasing agricultural exports is one of such solutions. Saffron is one of the important exports of Iran. Exchange rate volatility is a key and yet ambiguous factor in exporting agricultural products. Therefore, in this study, the effect of exchange rate volatility on Iranian saffron exports was analyzed in both short-run and long-run. Accordingly, exchange rate volatility index using the generalized auto-regressive conditional heteroskedasticity model (GARCH) was calculated. Then, the effect of exchange rate volatility on saffron exports using the Johansen-Juselius co-integration test and vector error correction model (VECM) was studied. The results showed that there is a negative and significant relationship between the exchange rate volatility and saffron exports in short-run and long-run. Likewise, the results showed that the export price and the domestic production of saffron have a significant and positive impact and wholesale price of saffron has a significant and negative impact on the exports of this product. Thus, policies to control and stabilize the exchange rate and economic conditions should be applied.