Advertisement

Foreign Exchange Rate and Agricultural Performances: A Time Series Exercise for India

Chapter
  • 369 Downloads

Abstract

The paper attempts to investigate and analyze the causal linkage between movements of foreign exchange rate and agricultural performances in terms of production and export empirically in India. Agricultural is described as the backbone of India, contributed largest but continuously declining share of national income. Indian agricultural exports, contribute a significant share of total exports, an important earner of foreign exchange. So foreign exchange rate can have a relationship with worldwide exports and well as output of India’s agricultural and allied commodities. In this context, the current paper explores the underlying long-term causal relationships among India’s foreign exchange rate and productions of exports of agricultural and allied commodities to fill gaps in the available literature. Yearly data on agricultural exports is calculated from DGCIS, Government of India over the period 1970–2015. Reserve Bank of India provides the yearly data on foreign exchange rate and data on GDP of agricultural and allied activities is collected from CSO, Government of India over the same period. The stochastic properties of variables are checked by applying ADF and PP unit root tests. Johansen cointegration test is employed followed by vector error correction mechanism (VECM) to find the long run dynamics. Our findings imply unidirectional long run causality between agricultural exports and India’s foreign exchange rate.

Keywords

Foreign exchange rate Agriculture export Agricultural production Unit root test Johansen cointegration test VECM 

Notes

Acknowledgements

Authors are thankful to the organizers and participants of 5th International Conference on Applied Econometrics held on 22–23 July 2016 at IBS Hyderabad, India. Authors are also grateful to the editors for including this paper as a chapter in this book. Important comments made by Session Chairs are gratefully acknowledged. Useful disclaimers apply.

References

  1. Akaike, H. (1969). Fitting autoregressive models for prediction. Annals of the Institute of Statistical Mathematics, 2, 243–247.CrossRefGoogle Scholar
  2. Bashir, Z. (2003). The impacts of economic reforms and trade liberalisation on agricultural export performance in Pakistan. Pakistan Development Review, 42(4), 941–959.Google Scholar
  3. Bradshaw, G., & Orden, D. (1990). Granger causality from the exchange rate to agricultural prices and export sales. Western Journal of Agricultural Economics, 15(1), 100–110.Google Scholar
  4. Central Statistics Office (CSO). (2016). National Accounts Statistics. New Delhi: MOSPI, Government of India.Google Scholar
  5. Chambers, R. G., & Just, R. E. (1991). Effects of exchange rate changes on U.S. agriculture. American Journal of Agricultural Economics, 73, 33–43.Google Scholar
  6. Chandra, R. (2002). Export growth and economic growth: An investigation of causality in India. Indian Economic Journal, 49, 64–73.Google Scholar
  7. Dash, R. K. (2009). Revisited export-led growth hypothesis: An empirical study on India. South Asia Economic Journal, 10(2), 305–324.CrossRefGoogle Scholar
  8. Engle, R. F., & Granger, C. W. (1987). Cointegration and error correction: Representation. Estimation and Testing, Econometrica, 55(2), 251–276.CrossRefGoogle Scholar
  9. Granger, C. W. J. (1981). Some properties of time series data and their use in econometric model specification. Journal of Econometrics, 121–130.Google Scholar
  10. Hughes, D. W., & Penson, J. B., Jr. (1985). Effects of selected macroeconomic policies on agriculture: 1984–1990. Agricultural Financial Review, 45, 81–91.Google Scholar
  11. Johansen, S., & Juselius, K. (1990). Maximum likelihood estimation and inference on cointegration—With applications to the demand for money. Oxford Bulletin of Economics and Statistics, 52(2), 169–210.CrossRefGoogle Scholar
  12. Johnson, P. R., Grennes, T., & Thursby, M. (1977). Devaluation, foreign trade control, and domestic wheat prices. American Journal of Agricultural Economics, 59, 619–627.CrossRefGoogle Scholar
  13. Khalafalla, K. Y., & Webb, A. J. (2001). Export-led growth and structural change: Evidence from Malaysia. Applied Economics, 33(13), 1703–1715.CrossRefGoogle Scholar
  14. Khan, A. H., Hasan, L., & Malik, A. (1995). Exports, growth and causality: An application of co-integration and error-correction modelling. Pakistan Development Review, 11, 1–19.Google Scholar
  15. Oyejide, T. A. (1986). The effects of trade and exchange rate policies on agriculture in Nigeria. IFPRI Research Report No. 55.Google Scholar
  16. Paarlberg, P. L., Webb, A. J., Morey, A., & Sharples, J. A. (1994). Impacts of policy on U.S. Agricultural Trade. United States Department of Agriculture Economic Research Service.Google Scholar
  17. Raju, S. S., & Kurien, J. (2005). Exports and economic growth in India: Cointegration, causality and error-correction modeling: A note. Indian Journal of Economics and Business, 4(1).Google Scholar
  18. Schwartz, N. E. (1986). The consequences of a floating exchange rate for the U.S. wheat market. American Journal of Agricultural Economics, 68, 428–433.CrossRefGoogle Scholar
  19. Sharma, A., & Panagiotidis, T. (2005). An analysis of exports and growth in India: Some empirical evidence. Review of Development Economics, 9(2), 232–248.CrossRefGoogle Scholar
  20. Shirazi, N. S., & Manap, T. A. A. (2004). Export and economic growth nexus: The case of Pakistan. Pakistan Development Review, 43(4), 563–581.Google Scholar
  21. Shombe, N. H. (2008). Causality relationships between total exports with agricultural and manufacturing GDP in Tanzania. Discussion Paper No. 136, Institute of Developing Economies—Japan External Trade Organization.Google Scholar
  22. Vellianitis-Fidas, A. (1976). The impact of devaluation on U.S. agricultural exports. Agricultural Economics Research, 28, 107–116.Google Scholar

Copyright information

© Springer Nature Singapore Pte Ltd. 2017

Authors and Affiliations

  1. 1.Department of Humanities and Social SciencesNational Institute of Technology DurgapurDurgapurIndia

Personalised recommendations