Agricultural Economics and Development

Agricultural Economics and Development

Investigating the Effect of Real Exchange Rate Shocks on Quality of Iran’s Export Agricultural Products Using Panel-SVAR Model

Document Type : Original Article

Authors
Reza heydari 1
Mohsen Rafaati 2
Mehdi Shabanzadeh-Khoshrody 3
ebrahim javdan 4
1 Corresponding Author and Assistant Professor, Agricultural Planning, Economics and Rural Development Research Institute (APERDRI), Tehran, Iran
2 Assistant Professors, Agricultural Planning, Economics and Rural Development Research Institute (APERDRI), Tehran, Iran.
3 Assistant Professor of Agricultural Economics, Institute of Planning Research, Agricultural Economics and Rural Development, Tehran, Iran
4 Assistant Professor of Agricultural Planning, Economic and Rural Development Research Institute (APERDRI)
10.30490/aead.2024.359790.1460
Abstract
Introduction: The real exchange rate, as one of the key macroeconomic variables, has always been focused by policymakers and economists. Also, the effect of the real exchange rate on the quality of Iran's export agricultural products is one of the important issues in agricultural economics. The change in the real exchange rate through changes in the composition of export goods, exporters’ motivation, demand elasticity as well as in other variables can cause variation in the quality of agricultural products. Therefore, this study mainly aimed at investigating the effect of real exchange rate shocks on the quality of Iran's export agricultural products using the Panel-SVAR model in the form of monthly panel data for 36 countries during 2007-2020. In addition, in this study, the effects of changes shocks in real GDP per capita and also in the quantity and price of Iran's agricultural products on their quality were investigated.
Materials and Methods: The study used the panel SVAR methodology developed by Pedroni (2013) to analyze the effect of the real exchange rate on the quality of Iran's export agricultural products, as follows:
In the above equation, c and t indices indicate the country and time period; the λ, q and 𝜋 variables also indicate the quality, quantity and price of export agricultural products, respectively; in addition, RER and RGDP represent the bilateral real exchange rate (between the exporting and importing countries) and the real GDP per capita for the importing country of Iran's agricultural products, respectively. Based on the above equation, the panel SVAR model could be defined as follows:
In the above equation, Sc is the matrix of structural parameters and reflects the short-term relationship between model variables. According to Mao et al. (2021), the Sc matrix could be considered as follows:
Results and Discussion: The results of the Impulse Response Functions (IRFs) showed that the cumulative response of the quality of Iran's agricultural products to shocks of real exchange rate was significantly positive, so that it would increase suddenly at the beginning of the period and then, reach a stable state, and the full effect of real exchange rate shocks would be revealed in the short term. In fact, an increase in the real exchange rate will improve the quality of Iran's export agricultural products. In addition, the cumulative response of the quality of Iran's agricultural products to shocks of GDP per capita and also the quantity and price of Iran's export agricultural products was significantly positive. Finally, the results of the structural variance decomposition showed that in the first five periods, the variables of quality of export agricultural products (by 88 percent) and the amount of export agricultural products (by 10 percent) had the greatest effects on changes in the quality of export agricultural products of Iran, respectively.
Conclusion and Suggestions: The study results have important policy implications for the government and companies that export agricultural products. The response of the quality of Iran’s export agricultural products in the short term showed that the improvement in the quality of these products after the increase in the bilateral real exchange rate can be achieved by the improvement of the quality of agricultural products in Iran's export baskets. Therefore, efforts towards the sustainable improvement of the quality of agricultural products through the advanced technologies, supporting Research and Development (R&D) activities in quality improvement and designing a comprehensive pattern of trade with the target countries can be the suitable solution considered by the government.
Keywords
Real Exchange Rate
Quality of Iran's Export Agricultural Products
Panel-SVAR Model

Subjects

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