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Exchange Rate Impacts on the Composition of Agricultural Trade

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  • Fuller, Frank
  • Hayes, Dermot J.

Abstract

This paper analyzes the impact of real exchange rate movements on the composition of trade in value-added and intermediate goods. It is shown that following a depreciation of the exporting country’s currency, the cost of importing value-added products declines relative to the cost of adding value to imported intermediate inputs. In equilibrium the composition of the resulting trade vector depends upon the relative magnitudes of price changes and import demand elasticities. Via simulation, the theoretical results are applied to U.S. trade in meat and feed grains. The papers conclusions have relevance for the development of integrated exchange rate, trade, and industrialization policies.

Suggested Citation

  • Fuller, Frank & Hayes, Dermot J., 2011. "Exchange Rate Impacts on the Composition of Agricultural Trade," ISU General Staff Papers 201101010800001562, Iowa State University, Department of Economics.
    • Handle: RePEc:isu:genstf:201101010800001562
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    References listed on IDEAS

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    1. Chang, Winston W & Mayer, Wolfgang, 1973. "Intermediate Goods in a General Equilibrium Trade Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 447-459, June.
    2. Batra, Raveendra N & Casas, Francisco R, 1973. "Intermediate Products and the Pure Theory of International Trade: A Neo-Heckscher-Ohlin Framework," American Economic Review, American Economic Association, vol. 63(3), pages 297-311, June.
    3. Avinash K. Dixit & Gene M. Grossman, 1982. "Trade and Protection with Multistage Production," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 49(4), pages 583-594.
    4. Dermot J. Hayes & Thomas I. Wahl & Gary W. Williams, 1990. "Testing Restrictions on a Model of Japanese Meat Demand," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 72(3), pages 556-566.
    5. Julian M. Alston & James A. Chalfant, 1993. "The Silence of the Lambdas: A Test of the Almost Ideal and Rotterdam Models," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 75(2), pages 304-313.
    6. Raveendra N. Batra, 1973. "Pure Intermediate Products," Palgrave Macmillan Books, in: Studies in the Pure Theory of International Trade, chapter 8, pages 180-201, Palgrave Macmillan.
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