Files
Abstract
This paper investigates the short-run and long-run impact of exchange rate on the trade
balance of Turkish Agriculture with EU (15) countries. The bounds testing approach to
the cointegration and the error correction modeling is employed. A new strategy in the
model selection phase is adopted and the optimal model is selected from the set of those
models that satisfy both diagnostic tests and cointegration. Thus, unlike the previous
literature utilizing this approach, it is ensured that a statistically reliable and
cointegrated model is picked up for estimation. Estimation results based on the data for
1988-I to 2008-IV period indicate that in the short-run real exchange rate variable
affects agriculture trade balance in trade with EU(15) and depreciation of Turkish Lira
improves the trade balance. As for the long-run impact of the exchange rate,
depreciation of domestic currency has a statistically significant negative effect on trade
balance of agriculture.