Exchange rate (volatility) and bilateral agricultural trade: Turkey vs. her major trading partners

Abstract

The purpose of this study is to analyse the sensitivity of Turkish bilateral agricultural trade flows to exchange rate and its volatility. To this end, we estimate the bilateral export, import and trade balance equations between Turkey and her 16 major trading partners for the period of 1987:q1-;2007:q4 by utilising the Vector Error Correction Modelling (VECM) framework. The short-run analysis based on the Impulse?Response Functions (IRFs) provides evidence that the pattern of Turkish agricultural trade balance with respect to exchange rate changes does not follow the J-curve hypothesis. The long-run analysis based on the Johansen cointegration approach, on the other hand, shows that the exchange rate and its volatility are important factors determining the dynamic of Turkish agricultural trade flows.