Exchange Rate Regimes and Agricultural Trade

Tola Oyeyemi

Emma Phillips

Gary Xia

Think about this…

Images:http://www.dw.de/nuclear-waste-shipment-continues-to-spark-determined-protests/a-6201316http://www.marxist.com/greek-december-short-balance-sheet.htmhttp://www.apostropher.com/blog/archives/001542.html

What is the effect of agricultural trade on exchange rate regimes?

Question

Background on Independent Variable

Decline

• Globalization, Industrialization

• <1960 = 30% of all merch trade

• By 2000, <9%

Still a Loud Voice

• Dwight Watson– Thousands in damages– 10 block area shut down in

DC– Federal offices evacuated

• In 2012 alone:– Serbia, India, Paraguay

Anderson, 2010, p. 3009Leonnig, 2003 United Press Int’l, 2012; Prensa Latina, 2012; The Times of India, 2012)Image: http://www.apostropher.com/blog/archives/001542.html.

Background on Dependent Variable

Elwell, 2011; Singer, 2010Image: http://www.voxeu.org/article/empirical-evidence-monetary-policy-trilemma-1970

• Exchange rate regimes:– Float, fix, peg

• The Gold Standard Bretton-Woods Float• Mundell-Fleming Trilemma:

– Free flow $, exΔ rate certainty, policy-making autonomy

– “Flexibility vs. credibility”(Singer, 2010)

Hypotheses

• Pegged Rate

• Pegged Rate

• Floating Rate

They would move towards a…

HypothesesHypothesesHypothesesHypothesesHypothesesHypotheses

1. Share of GDP in the agricultural sector

1. Share of GDP in agricultural exporting

1. Share of GDP in Domestic Agriculture

Hypotheses

If a country has large…

Methods

• Data Sets: Singer & WDI– 1980 to 2008

• Independent Variable Agricultural Economy» Agriculture’s %GDP per capita

» Exports in Agriculture (% of GDP)

» Domestic Agriculture (% of GDP)

• Dependent Variable Exchange Rate Regimes» IMF scale: 1 = fully fixed, 4 = fully floating

More Variables

• Test for Robustness

• Control Variables Lagged Dependent Variable-Remittances-Exports-Reserves-Democracy-Inflation-Manufacturing-A few more…

ResultsTable 5.1: Relationship Between Agricultural Sector and Exchange Rate Regime, 1980-2009    Model 1 Model 2 Model 3 Model 4 Model 5           Agriculture, value added (% of GDP) -0.001    (0.002)  Agricultural raw materials exports, (% of GDP) -0.073*** -0.017*** -0.013** -0.010**  (0.012) (0.006) (0.005) (0.005)Domestic Agriculture, value added (% of GDP) .007*** 0.003 0.001 0.000  (0.002) (0.003) (0.002) (0.001)Lagged dependent variable 0.856*** 0.874*** 0.875***  (0.017) (0.013) 0.012Remittances/GDP (lagged) -0.008* -0.004    (0.004) (0.003)  Exports/GDP (lagged) -0.002** -0.003*** -0.003***  (0.001) (0.001) (0.001)Reserves (in months of imports) -0.012* -0.010* -0.007  (0.007) (0.006) (0.005)Democracy (polity score) 0.007** 0.006** 0.006**  0.003 (0.003) (0.002)Current account balance 0.007* 0.003    (0.004) (0.003)  Inflation (lagged) 0.000    (0.000)  Manufacturing/GDP 0.001    (0.003)  Percent fix (de jure only) -0.003    (0.002)  Year -0.002    (0.003)  Capital account openness (KAOPEN) -0.002    (0.014)  Terms of trade volatility -0.002    (0.003)     Constant 2.191*** 2.306*** 4.314 0.463*** 0.426***  (0.040) (0.047) (5.900) (0.064) (0.056)Obs. 2676 1910 945 1314 1525   

Note: Regression coefficients; standard errors in parentheses. * p<0.1, ** p<0.05, *** p<0.01

Conclusions

1. Agriculture (%GDP) insignificant

1. Exports consistently negative and significant

1. Last hypothesis unsupported

1. Remittances insignificant when agriculture is accounted for

• Pegged Rate

• Pegged Rate

• Floating Rate

1. Share of GDP in the agricultural sector

1. Share of GDP in agricultural exporting

1. Share of GDP in Domestic Agriculture

Analysis

They would move towards a…If a country has large…

Why are these results important?

• Exchange rates are highly manipulated– What influences exchange rates?

• Many variables to consider

• Well-being of people

Continuing our Work

• Introduction to larger macroeconomic issues

• Looking at international trade as a whole

• More accurate and comprehensive data– Imports, more countries, etc.

Thank You!

Questions?Questions?

Comments?Comments?

Concerns?Concerns?