Real Exchange Rate Uncertainty and Agricultural Bilateral Trade: Panel Data Analysis

Abstract
The main aim of this study is checking the impact of exchange rate levels and its uncertainty on bilateral agricultural trade between Iran and four major trading partners using fixed effect analysis. Results show that (i) the exchange rate uncertainty is more robustly linked to export volumes than is exchange rate level while the exchange rate level is more robustly linked to import volume, (ii) exchange rate uncertainty is associated with smaller trade volumes in both directions, but more so for imports than for exports, and (iii) income growth in Iran is associated with greater imports, just as income growth among trading partners is associated with greater exports. These findings provide that increasing of the real exchange rate leads to a reduction in the trade balance, so it is recommended that Iranian Rial is appreciated against the currency of Iran partners. Due to the positive impact of real exchange rate volatility and income on the trade balance, they can be used as an opportunity to improve the trade balance.

JEL Classification: C23, D81, F41

Keywords:
Agricultural Trade, Exchange Rate, Exchange Rate Uncertainty, Fixed Effect Estimation