The Recent Decline in Agricultural Exports: Is the Exchange Rate the Culprit?

OS/as S. Batten is a senior economist and Michael 11 Be/on gia is an economist at the Federal Resenie Bank of St Louis. Sarah R. Driver provided research assistance. ‘Chattin and Lee (1983), p. 19. ‘Schuh (1984), p. 244. Other papers drawing a similar causal relationship between exchange rates and agricultural exports include Chambers and Just (1982), Tweeten (1983) and Hathaway (1983). The problem with these statements is that such simple analyses generally are inadequate in establishing a cause-and-effect relationship between exchange rates and agricultural exports. First, the comparison in chart I fails to distinguish nominal changes in exchange rates, which reflect changes in relative rates of inflation across countries, from real changes in exchange rates, which reflect structural changes. An analysis of the impact of exchange rates on trade must first separate these two types of exchange rate changes, because only changes in real magnitudes influence trade flows.