Impact of Macroeconomic Variables on Agricultural Trade Balance

In this study long run relation and short run dynamics between agricultural trade balance and macroeconomic variables in Iran have been examined. For this purpose Johanson cointegration test and vector error correction model were applied. Results showed that agricultural value added, exchange rate, economic openness index and agricultural import tariff have positive and significant impact on agricultural trade balance, whereas per capital disposable income and food whole sale price index have negative and significant impact on agricultural trade balance. Moreover, impulse response function results showed that a shocked in agricultural value added, economic openness index and food whole sale price index have positive influence on agricultural trade balance. Also, variance decomposition results showed that agricultural trade balance, agricultural import tariff, economic openness index and real exchange rate describe major part of changes in agricultural trade balance. Finally, agricultural trade balance might improve if real exchange rate increase and government proved open economic condition.

JEL Classification: F11, C22, Q17

Keywords:
Agricultural Sector, Trade Balance, Value Added, Real Exchange Rate, Vector Error Correction Model