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

Published online by Cambridge University Press:  15 September 2016

Mathew Shane ,
Terry Roe  and
Agapi Somwaru
Mathew Shane
Affiliation:
Senior Economists at the USDA's Economic Research Service in Washington, D. C.
Terry Roe
Affiliation:
Applied Economics and Co-Chairman of the Economic Development Center at the University of Minnesota in St. Paul, Minnesota
Agapi Somwaru
Affiliation:
Senior Economists at the USDA's Economic Research Service in Washington, D. C.
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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.

Keywords

exchange ratesU. S. agricultural tradeU. S. agricultural commodity exportsU. S. agricultural export pricesforeign income
Type
Contributed Papers
Information
Agricultural and Resource Economics Review , Volume 37 , Issue 2 , October 2008 , pp. 160 - 175
Copyright
Copyright © 2008 Northeastern Agricultural and Resource Economics Association 

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