Foreign Exchange Rate and Agricultural Performances: A Time Series Exercise for India

Abstract

The paper attempts to investigate and analyze the causal linkage between movements of foreign exchange rate and agricultural performances in terms of production and export empirically in India. Agricultural is described as the backbone of India, contributed largest but continuously declining share of national income. Indian agricultural exports, contribute a significant share of total exports, an important earner of foreign exchange. So foreign exchange rate can have a relationship with worldwide exports and well as output of India’s agricultural and allied commodities. In this context, the current paper explores the underlying long-term causal relationships among India’s foreign exchange rate and productions of exports of agricultural and allied commodities to fill gaps in the available literature. Yearly data on agricultural exports is calculated from DGCIS, Government of India over the period 1970–2015. Reserve Bank of India provides the yearly data on foreign exchange rate and data on GDP of agricultural and allied activities is collected from CSO, Government of India over the same period. The stochastic properties of variables are checked by applying ADF and PP unit root tests. Johansen cointegration test is employed followed by vector error correction mechanism (VECM) to find the long run dynamics. Our findings imply unidirectional long run causality between agricultural exports and India’s foreign exchange rate.