Exchange Rate Movements and the Mexico-United States Agri-Food Trade

The favorable Mexico-United States exchange rate hasbeen cited as an important factor for the growth inexports of agri-food products from Mexico to theUnited States. Some analysts have also emphasizedthe importance of NAFTA and the exchange ratevolatility in the performance of the Mexico-US agri-food trade. An important policy question is theextent to which changes in the Mexico-US exchangerate and its volatility have contributed to thegrowth in agri-food trade between these twocountries. The results from cointegration analysisshow that while changes in exchange rate have apositive effect on trade flows, volatility of theexchange rate has a negative effect on trade flows.The results indicate that the volatility measuregenerated from a GARCH (1,1) model provides moreconsistent results in terms of signs and sizes ofthe estimated coefficients than those from othervolatility measures. While VEC models provideresults supporting the findings of the cointegrationresults on the effects of exchange rate and itsvolatility on trade flows, the short-runelasticities are smaller than the corresponding long-run elasticities.

Autorentext
JARAMILLO-VILLANUEVA JOSE LUIS Dr. José Luis Jaramillo is a Professor at the Colegio dePostgraduados en Ciencias Agrícolas, México. He obtained a PhDin Agricultural Economics in 2006. He teaches Agri-business,program and project evaluation and The economics of theenvironment. His research concentrates on Agri-Foodmarkets,agricultural policy and international trade.

Klappentext
The favorable Mexico-United States exchange rate has been cited as an important factor for the growth in exports of agri-food products from Mexico to the United States. Some analysts have also emphasized the importance of NAFTA and the exchange rate volatility in the performance of the Mexico-US agri- food trade. An important policy question is the extent to which changes in the Mexico-US exchange rate and its volatility have contributed to the growth in agri-food trade between these two countries. The results from cointegration analysis show that while changes in exchange rate have a positive effect on trade flows, volatility of the exchange rate has a negative effect on trade flows. The results indicate that the volatility measure generated from a GARCH (1,1) model provides more consistent results in terms of signs and sizes of the estimated coefficients than those from other volatility measures. While VEC models provide results supporting the findings of the cointegration results on the effects of exchange rate and its volatility on trade flows, the short-run elasticities are smaller than the corresponding long- run elasticities.