The effect of real exchange rates and their volatilities on the selected agricultural commodity exports: A case study on Turkey, 1971-2010

Abstract

235After the collapse of the Brettonwood system in 1973, most of the countries have abandoned to use solely the fixed exchange rate regime, and different countries have adapted different exchange rate regimes. Then, the impact of both the exchange rate level and the exchange rate volatility or variability especially on exports, the bilateral trade flows and the volumes of trade have been empirically and theoretically discussed.A large number of studies examine both the effect of the exchange rate and its volatility on agricultural trade. However, no consensus was reached yet on the relationship between the exchange rate and agricultural trade. As discussed in the literature, it is important to use disaggregated data and/or data on the individual commodities to get more meaningful results on the size and magnitude of the effects of the real exchange rates on agricultural commodities trade. (Awokuse and Yuan 2006;Byrne et al. 2008;Bahmani-Oskooee and Hegerty 2009;Karemera et al. 2011). Byrne et al. (2008) discuss the possibility of finding a negative effect of the exchange rate volatility on trade by pooling the data of all industries together, and claim that the disaggregation of the data such as firm, industry or commodity level could provide more appropriate and meaningful results. Considering the individual sectors and/or commodities is vitally important to understand the exact nature of the relation and to further tailor effective policy measures based on these fine results. Thus, we investigate the relationship between the real exchange rates and several of the most important Turkish agricultural commodities. They represent almost a quarter of the overall Turkish agricultural exports. LITERATURE REVIEWA number of studies ( Hooper and Kohlhagen 1978;Arize et al. 2008;Kafle and Kennedy 2012) argue that the exchange rate volatility can have a negative effect on the international trade flows, either directly through the uncertainty and adjustment costs or indirectly through its effect on the allocation of resources and government policies. The volatile nature of exchange rates has always led risk-averse traders to reduce their trading activities ultimately reducing the international trade flows. However, Arize et al. Abstract: Th is study investigates the eff ect of the exchange rate volatility and the real exchange rate on the bilateral agricultural exports fl ows of Turkey to 46 countries. A panel data set, which contains 46 cross-sections and 1840 observations, is used for exports of the selected agricultural commodities to countries from 1971 to 2010. Our empirical results based on a gravity equation show that while the exchange rate volatility does not exert a signifi cant eff ect on the Turkish agricultural commodity exports, the real exchange rate has a statistically signifi cant eff ect on the agricultural commodity export fl ows. Regardless of the region chosen, raisins and tobacco exports are very much sensitive to the real exchange rates. It means that any depreciation in the Turkish Lira leads to hig...

Impacts of Agricultural Supports on Exports of Individual Agricultural Products in Turkey

“…Conversely, the depreciation of Turkish Lira negatively affects the exports three commodities in our sample, namely tobacco, hazelnut (in the case of exports to Europe, which constitute 76% of total hazelnut exports) and grape-raisin, which have important shares in the Turkish agricultural exports. Although the negative relationship between exchange rates and exports of hazelnut, grape-raisin and tobacco can be attributable to the monopoly power of Turkish producers in these commodities as stated in Yanikkaya et al (2013), their consistent insensitivity to the domestic supports or border measures is interesting since hazelnut and tobacco are highly subject to government interventions. On the effects of exchange rate volatility, our analysis show that although there are mixed results, general effect of volatilities on the Turkish agricultural exports is negative.…”

“…In another commodity-specific study based on the data for dried 13 Impacts of Agricultural Supports on Exports of Individual Agricultural Products in Turkey figs, grapes and tobacco, Buguk et al (2003) find that there is no significant relationship between exchange rate or its volatility and the exports of aforesaid commodities in the case of Turkey. Yanikkaya et al (2013) examine the effect of real exchange rate and its volatility on agricultural export flows of Turkey at the commodity level. They argue that although the real exchange rate has an important effect on Turkish agricultural commodity exports, exchange rate volatility hasn't.…”

“…distance between two capital cities of the trading partners is measured by using great circle formula and utilizing CEPII database for longitudes and latitudes of the capital city of countries. 5,6 Although there are different methods in the literature for measuring exchange rate volatility, we follow the same methodology used in Yanikkaya et al (2013). The proxy for exchange rate volatility is obtained by utilizing commonly used standard deviation of the first difference of logarithm of the monthly exchange rate over a one-year period for short-run and also it is measured over a five-year period for long run.…”

Quality response to real exchange rate shocks: A panel SVAR analysis on China's agricultural exports

“…With a series of exchange rate reforms, the yuan's misalignment issue has diminished in recent years, which is expected to have far‐reaching implications on exports. On the one hand, many studies have noted the negative export impact resulting from real exchange rate appreciation (Baek & Koo, 2011; Berman et al., 2012; Cushman, 1983; Lamb, 2000; Li et al., 2015; Yanikkaya et al., 2013). On the other hand, however, aggravated market competition, restructured product mixes, and ameliorated vertical integration might lead to quality improvements that enhance firms’ capability to cope with the challenge of losing price competitiveness, which would increase exports in the long run.…”

“…Most of the current literature on the relationship between exchange rate and agricultural trade has been concerned with the trade volume. They consistently concluded that both currency appreciations and an increased exchange rate volatility could result in reduced agricultural exports (Baek & Koo, 2011; Lamb, 2000; Yanikkaya et al., 2013). Specifically, they found the agricultural export volume to decline by 0.05–1.98% on average with a 1% appreciation of the exporter currency.…”