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Exchange Rates, Foreign Income, and U.S. Agricultural Exports

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  • Shane, Mathew
  • Roe, Terry L.
  • Somwaru, Agapi

Abstract

While it is generally accepted that change in the real value of the dollar is an important determinant of exports, it has not been rigorously demonstrated that this relationship, derivable from theory, holds empirically for agricultural exports and the components of agricultural exports. Starting with a dynamic maximizing framework, this paper estimates the real trade-weighted exchange rate and trade partner income effects on U.S. agricultural exports. For the period 1970–2006, a one percent annual increase in trade partners’ income is found to increase total agricultural exports by about 0.75 percent, while a one percent appreciation of the dollar relative to trade partner trade-weighted currencies decreases total agricultural exports by about 0.5 percent. While these effects carry over to 12 commodity subcategories, they are conditioned by differences between bulk and high value commodities, and differences in the export demand from high compared to low income countries. We use a directed acyclic graphs (DAG) technique to identify the inverted fork causal relationships from vector autoregression (VAR) models. We also find that there is an asymmetric exchange rate effect so that the negative effect of exchange rate appreciation on exports sometimes dominates the positive effect of foreign income growth.

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File URL: http://purl.umn.edu/45666
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Bibliographic Info

Article provided by Northeastern Agricultural and Resource Economics Association in its journal Agricultural and Resource Economics Review.

Volume (Year): 37 (2008)
Issue (Month): 2 (October)
Pages:

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Handle: RePEc:ags:arerjl:45666

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Web page: http://www.narea.org/
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Related research

Keywords: exchange rates; U.S. agricultural trade; U.S. agricultural commodity exports; U.S. agricultural export prices; foreign income; International Relations/Trade;

References

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Cited by:
  1. Mathew Shane & David Kelch, 2012. "The Eurozone Sovereign Debt Problem: What It Means for U.S. Exports," International Advances in Economic Research, Springer, vol. 18(4), pages 367-381, November.
  2. Nie, Jun & Taylor, Lisa, 2013. "Economic growth in foreign regions and U.S. export growth," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 31-63.

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