Asymmetric Effect of Exchange Rate on the Trade Balance of Iranian Agriculture, Industry and Mining, Service and Oil and Gas

Considering the unique economic circumstances in Iran, the exchange rate is a crucial determinant of the Iranian economic state. Over the past three decades, the exchange rate has exhibited significant fluctuations. Given that, previous studies investigating the impact of these fluctuations on the trade balance have primarily focused on overall sectors or international comparisons, In contrast, this study concentrates on specific sectors including agriculture, industry and mining, oil and gas, and services. The primary aim of this research is to analyze the asymmetric effects of the real exchange rate on the trade balance in all four sectors, as well as the overall trade balance of Iran. To achieve this objective, this study utilizes linear and non-linear autoregressive distributed lag methods (ARDL and NARDL methods) to examine the short-term and long-term effects of the real exchange rate on these trade balances. The linear ARDL model is employed to explore symmetric effects, while the non-linear ARDL (NARDL) model is used to evaluate asymmetric effects. The NARDL estimation model indicates that the exchange rate is only significant in the short term and long term in the agriculture sector. This suggests that the real exchange rate has an impact on the trade balance of the agricultural sector. Additionally, the real exchange rate shows a significant non-linear relationship with almost all sectors in the short and long term. The results demonstrate a positive and significant relationship between an increase in the effective exchange rate and the trade balance in both the short and long term. Moreover, the trade balance reacts more to positive shocks in the effective exchange rate than negative shocks