The Effects of Exchange Rate Volatility on Foreign Agricultural Trade in Iran

Exchange rate volatility is one of the major constraints to trade. The aim of this study was to evaluate the effect of exchange rate volatility on trade in agricultural products in the period 1980-2012. For measurement real exchange rate volatility of symmetrical patterns, non-linear and asymmetric GARCH estimated.Ultimately EGARCH (Exponential) coefficient which indicated the presence of asymmetry in exchange rate volatility as a model for the index of exchange rate volatility was selected.To investigate the relationship between variables in the equations, Johansen Juselius vector error correction model (VECM) is used. The results of the model estimates shows that, in the long run, exchange rate volatility had negative effect on exports of agricultural products.Other results also shows that foreign currency revenues earned from exporting oil had negative effect on the export and import of agricultural products. Gross domestic product, in the long-term, had negative and significant effect on imports of agricultural products.Decreasing the exchange rate volatility and targeting it in a reasonable boundary according to economic conditions could enhance agricultural export and increase the potential for planning of production.