Examining the Relationship Between Exchange Rate Uncertainty and Virtual Water Export in Iran

The uncontrolled use and wasting of water in the agriculture sector gives greater importance than ever before to the question of water resources management. One of the most important uses of water in the agriculture sector, which has received much less attention than the others, is virtual water e port through which a very large volume of Iran’s water resources leaves the country every year. This research studies the exchange rate uncertainty, which is one of the influential factors in virtual water export. Therefore, in this study first we use EGARCH method to estimated exchange rate uncertainty and then we use Hsiao causality method to show relationship between exchange rate uncertainty and the export of virtual water. The findings show that the FPE(i) index values in the two studied causal states, (14.46 and 3.43) are respectively larger than that of the FPE (i, j) index value (13.82 and 1.47). This fact confirms that there is a mutual causal relationship between exchange rate uncertainty and virtual water export of Iran. Therefore, we can say these two factors influence on each other. These results point to the need for stability in the foreign currency of the country on the one hand and management of the production and export sectors on the other hand.