Investigating the Effect of Economic Variables on Export of Iranian Traditional and Agricultural Goods

Abstract

In this research, the effect of five macroeconomic variables of the exchange rate, gross domestic product, relative prices of agricultural commodities, agricultural capital, and money supply is investigated on the agricultural and traditional exports during 1986-2014. In the present study, we used the Vector Auto-Regressive (VAR) model and the Johansen method. The results show a positive and significant correlation between agricultural and traditional exports and variables of the exchange rate, relative prices, and money supply. However, there is a negative and significant relationship between agricultural capital and the dependent variable. Besides, there is a one-way causal relationship between the exchange rate and agricultural exports as well as the supply of money and agricultural exports. Finally, using the modified coefficient of Error-Correction Mechanism (ECM), we can infer that if an imbalance occurs in agricultural exports in any year, a quarter of imbalance will be restored in the next period. To determine the relationship between variables, in the long run, we used Johansson method to estimate the convergent vectors and apply constraints on cointegration relations. Based on the study results, we suggest that economic authorities should try to approximate the exchange rates and eliminate the gap between central bank exchange rate and free-market exchange rate. This method is the best way to stabilize the exchange rate, and consequently, export stability in the long run. To do this, the proper monetary and financial measures must be taken to direct liquidity toward production and boost the capital market.