The effect of economic globalization on the exchange relationship of Iran's agricultural sector

Academic Thesis for Master Degree in Agricultural Economics

The exchange relationship is considered one of the important tools for analyzing macroeconomic issues. The main goal of the research is to determine the effect of economic globalization on the exchange relationship of Iran's agricultural sector. In this research, the value of export and import of agricultural products during the period 1350 to 1387 was collected from the FAO website. The added value of the agricultural sector, the nominal exchange rate and the price of oil are also extracted from the statistics of the Central Bank. Using the VAR model, the effect of globalization has been seen through the index of international trade integration (IIT) on the exchange relationship of agricultural goods. According to the existing theoretical literature, a model for the exchange relationship in terms of oil price, real exchange rate, GDP and by adding the index of international trade integration has been specified. The results show that a research hypothesis that globalization (IIT) has a positive effect on the exchange relationship of agricultural goods is rejected in the short term. The negative effect shows that in the short term due to the connection with the world market, the process of commercialization will be accompanied by a decrease in the net, gross and income exchange relationship. But in the long term, the effect of globalization on the gross exchange relationship is negative and on the net exchange and income relationship is positive. The positive effect also shows that in the long term, as a result of the connection with the global market, the process of commercialization will be accompanied by an increase in net exchange and income. New society saw that it has different functions in different dimensions. Many experts believe that globalization has more of an economic aspect, and one of the most prominent developments that have occurred in recent years has been the convergence and integration of national economies into global economies, which has been carried out in the wake of technological advances and information technology and in the context of liberalization policies. Globalization is a common term of the 1990s, although there have been many discussions about it, but a comprehensive and comprehensive definition that includes all aspects of this phenomenon has not yet been provided, and there are still many disputes and ambiguities around its definition. Krugman and Rene Balls have defined globalization as the further integration of world markets. Cole sees it as a model for the evolution of cross-border activities of enterprises and companies. McEwan sees globalization as the international expansion of capitalist production and exchange relations (Azerbaijani et al., 2012). Also, Praton sees globalization as a process of transformation that diminishes political and economic boundaries, expands communication and increases the interaction of cultures (Dodgrou et al., 2012). The International Monetary Fund (IMF) [1] also sees globalization as the growth of the economic interdependence of countries around the world through the increase in the volume and variety of exchanges of goods and services and the flow of capital across borders, as well as through the wider and faster spread of technology (Kirimi Hesnijeh, 2016). In the context of the globalization of the economy, the agricultural sector is particularly important in Iran's economy. This sector is one of the most powerful sectors of the country's economy and provides more than one-fifth of GDP, one-fifth of employment, more than four-fifths of food needs and more than one-quarter of non-oil exports. Therefore, any changes in this sector can change the important economic indicators of the country. The development of the agricultural sector is a prerequisite and a necessary requirement for the country's economic development, and until the obstacles to development in this sector are not removed, other sectors will not achieve prosperity, growth and development (Amirtimori and Khalilian, 2016). One of the most important decision-making tools for brokers and economic enterprises is the price of goods and services. In other words, the price of goods and services creates signals for the decision-making of agents and economic enterprises to allocate the limited resources of a society among its unlimited demands. The result of all the market and non-market forces is reflected in the price of goods and causes the aforementioned signals to be sent (Mehrabi, 2012). A change in the relative prices (price exchange relationship) of any activity or economic sector compared to other sectors of the economy can cause the allocation of resources and funds from one activity to another or from one sector to another.A change in the relative prices (price exchange relationship) of any activity or economic sector compared to other sectors of the economy can cause the rotation of resource and capital allocation from one activity to another or from one sector to another. It is clear that any sector or activity that has a relationship of price exchange to its loss will suffer in the process of resource allocation and as a result the growth of production. In Iran, the prices of the agricultural sector and other economic sectors, both in the domestic market and in the domestic trade sector, are affected by various macroeconomic policies, and this in turn causes the price exchange relationship of the agricultural sector and its sub-sectors to be affected. Considering Iran's reliance on oil revenues and the great fluctuations of these revenues, which has and will continue to cause Iran's economy to face a crisis, attention should be paid to other sectors of the economy, that the agricultural sector has many advantages in this field that must be strengthened. The necessity of forming a strong sector in the long term is to adopt appropriate policies and these policies cannot be implemented without identifying and recognizing effective and important factors. The necessity of avoiding mono-product exports and getting rid of the problems caused by it, creating diversity in export products, providing currency for investment and increasing the share in world trade and international markets, clearly shows the importance of non-oil exports. To achieve this goal, the agricultural sector has important advantages and characteristics such as climate diversity, suitable temperature, land diversity, cheap labor, economic activity platform for nearly half of the country's population, less dependence on complex technology and having production expansion facilities (Khalilian, 2018). Today, the international trade policy of agricultural products is considered as a key strategy in most countries, so that this process has been developed at a faster rate than the growth of the production of goods and services. For example, the total volume of world production of goods and services has almost quadrupled during the period 1953-82. This is despite the fact that the volume of global exports has increased six times during the mentioned period. The total volume of global production of goods and services, as well as the volume of global exports in relation to agricultural products, has doubled and quadrupled, respectively, which indicates the growth of global exports (Hook, 1986). In order to increase economic growth, most countries seek to develop trade with other countries and produce goods based on comparative advantage (Masrinejad and Ebrahimi, 2015). Trade liberalization policies affect the overall structure of the economy. Importing countries of agricultural goods have tried to support their agricultural sector by applying customs tariffs and exporting countries by paying subsidies for the export of agricultural goods. Following the efforts of countries to commercialize agricultural products, the same trend that existed in the case of industrial goods, the past routine of supporting the agricultural sector was changed, and finally these efforts led to the creation of a new agreement among the members of the World Trade Organization. Based on these agreements, it was decided to reduce the barriers of tariffs and non-tariffs, as well as limit the export of agricultural goods. The implementation of the aforementioned agreements has important implications and effects for the development of the agricultural sector of member and non-member countries, which is considered very necessary for countries like Iran, which are both importers and exporters of agricultural products. Since Iran's agricultural sector is very extensive, there is a belief that the agricultural sector has a lot of actual and potential ability and this talent lies in it to have a significant ability to supply to the world markets if the right conditions are provided. With such thoughts, an attempt has been made to investigate the effect of economic globalization on Iran's agricultural exchange relationship. For this purpose and considering that many important factors of economic globalization do not affect Iran's agricultural sector (such as foreign direct investment), therefore, globalization in Iran's agricultural sector can only be examined in terms of commercialization, and in this connection, the intra-industry trade index (IIT) has been used to measure globalization. (VECM)