The Impact of Oil Revenue Shocks and Exchange Rate Volatility on the Growth of the Agricultural Sector in Iran

Oil sector plays a decisive role in the Iranian economy and oil revenue fluctuations have great impact on the economy as a whole and its various sectors. In addition, exchange rate volatility affects production and economic growth. Therefore, this paper aims to investigate the impacts of oil shocks and the uncertainty caused by exchange rate volatility on the growth of the agricultural sector in Iran during the period 1974-2012. For this purpse, structural vector autoregression (SVAR) method, impulse response functions (IRF) and forecast error variance decompositions (FEVD) techniques were used. The results revealed that negative oil revenues shocks had positive impact (0.048) while positive oil revenues shocks had negative impact (-0.046) on the growth of the agricultural sector. The impact of real exchange rate volatility on the value added agriculture was significant and equal to -0/013. The results confirmed the existence of Dutch disease in the agricultural sector.