The Effects of Agricultural Trade Openness on Food Price in Iran

اقتصاد و توسعه کشاورزی

Article 3, Volume 36, Issue 4 - Serial Number 57, December 2023, Pages 363-376   

Document Type: Research Article-en

DOI: 10.22067/jead.2022.73620.1098

Authors

M. Ghahremanzadeh^* ; M. Samadpour; J. Hosseinzad

Department of Agricultural Economics, Faculty of Agriculture, University of Tabriz, Tabriz, Iran

Abstract

Trade liberalization of agricultural products and its effect on food prices, because of the importance of food in the household consumption basket, is one of the most important goals of governments for public access to health and food security. The present study investigated the effect of trade liberalization on domestic food prices in Iran. In this context, the single-equation error correction model (SEECM) was applied using the required time series data during 1989-2019. The results show that in the short-term, only increases in global food prices, liquidity, and exchange rates significantly affect domestic food prices. However, domestic food prices show more reaction to exchange rate fluctuations than to world prices. The estimated long-run equilibrium relationship demonstrated that world food prices have a positive and trade liberalization has a negative effect on domestic food prices. In addition, in the long run, the effect of liquidity on the domestic food price of food is more than other factors. The estimated error-correction term indicates that in the long run, if a shock occurs to the domestic food price, the domestic market can adjust it by only 35% annually. Considering the fluctuations of global prices and exchange rates, and their impacts on domestic prices, it is necessary to pay attention to these fluctuations in revising trade policies.

Keywords

Exchange rate; Food stuff; Global prices; Trade openness

References

1. Abrishami, H., Mehrara, M., & Mohseni, R. (2005). Effect of trade liberalization on trade balance and current account balance of payments (an econometric analysis). Journal of Knowledge and Development 17: 11-38. (In Persian)
2. Abrishami, H., Mehrara, M., & Mohseni, R. (2006). Effect of trade liberalization on export and import growth. Quarterly Journal of Business Research 40: 95-126. (In Persian)
3. Baquedano, F., & Liefert, W. (2014). Market integration and price transmission in consumer markets and developing countries. Food Policy 44: 103-114. https://doi.org/1016/j.foodpol.2013.11.001.
4. Berlingieri, G., Breinlich, H., & Dhingra, S. (2018). The impact of trade agreements on consumer welfare—evidence from the EU common external trade policy, Journal of the European Economic Association, European Economic Association 16(6): 1881-1928. https://doi.org/1093/jeea/jvx053.
5. Breusch, T.S., & Pagan, A.R. (1979). A simple test for heteroscedasticity and random coefficient variation, Econometrica 47: 1287-1294.
6. Campa, J.M., & Goldberg, L.S. (2005). Exchange rate pass-through into import prices. The Review of Economics and Statistics 87(4): 679–690. https://doi.org/10.1162/003465305775098189.
7. Cudjoe, G., Breisinger, C., & Diao, X. (2008). Local impacts of a global crisis food price transmission and poverty impacts in Ghana.
8. Debab, N., & Radhi, S. (2011). Effects of trade liberalization on domestic consumer prices a case study of gulf cooperation council. European Journal of Economics, Finance and Administrative Sciences ISSN 1450-2275 Issue 37.
9. Dehkiani K.M., Mosavi, S.H., & Khalilian, S.(2019). Analyzing the potential impacts of trade liberalization on agricultural backward and forward linkages using the updated input-output table in 2011. Journal of Agricultural Economics and Development27 (105): 1-34. (In Persian). https://doi.org/ 30490/AEAD.2019.91240.
10. (2008). The escalation in world food prices and its implications for the Caribbean. The Economic Commission for Latin America, Santiago, Chile.
11. Elgaili Elsheikh, O., Abdelbagi Elbushra, A., & Salih, A. (2015). Economic impacts of changes in wheat’simport tariff on the Sudanese economy. Journal of the Saudi Society of Agricultural Sciences 14: 68-75. https://doi.org/1016/j.jssas.2013.08.002.
12. Flachsbarth, I., & Garrid, A. (2014). The effects of agricultural trade openness on food price transmission in Latin American countries. Spanish Journal of Agricultural Research12 (4): 927-940. https://doi.org/5424/sjar/2014124-6292.
13. Ghahremanzadeh, M., Faraji, S., & Pishbahar, E. (2020). Transfer of world prices and exchange rates to domestic prices of major imports of livestock and poultry in the country. Journal of Agricultural Economics14 (2): 23-52. (In Persian). https://doi.org/22034/IAES.2020.134731.1780.
14. Ghahremanzadeh, M., Khalili Malakshah, S., & Pishbahar, E. (2018). The range of import pass-through tariffs to agricultural products prices in urban and rural areas of Iran. Journal of Agricultural Economics and Development31 (4): 311-320. (In Persianwith English Abstract). https://doi.org/22067/JEAD2.V31I3.61571.
15. Gholipour, S., Mohammadzadeh, R., Bakhshoodeh, M., Azarinfar, Y., & Rafati, M. (2011). Study of agricultural trade openness impact on export and import shares of agriculture and services in Iran. Journal of Agricultural Economics and Development25 (4): 392-399. (In Persian with English Abstract)
16. Ivanic, M., & Martin, W. (2014). Implications of domestic price insulation for global food price behavior. Journal of International Money and Finance 42: 272–288. https://doi.org/1016/j.jimonfin.2013.08.015.
17. Inusa, E.M., & Umaru, A. (2021). Openness and agricultural performance in Nigeria. Asian Journal of Economic Modelling9(2): 132–144. https://doi.org/18488/JOURNAL.8.2021.92.132.144.
18. Jafari Samimi, A., & Farajzade, Z. (2019). Factors affecting food price index in Iran. Journal of Agricultural Economics Research11 (41): 1-16. (In Persian with English abstract)
19. Javdan, E., Haghighat, J., Pishbahar, E., & Mohammadrezaei, R. (2017). Investigation the pass-through of global food prices to domestic prices in Iran. Quarterly Journal of Applied Theories of Economics 4(11): 177-196. (In Persian)
20. Lim, E., & Breuer, J.B. (2019). Free trade agreements and market integration: Evidence from South Korea. Journal of International Money and Finance, Elsevier 90(C): 241–256. https://doi.org/10.1016/j.jimonfin.2018.09.010.
21. Mehrabi Boshrabadi, H., & Mousavi Mohammadi, H. (2009). An Examination of the Effects of Trade Liberalization on Food Security of Iranian Rural Households. Village and Development 12(2): 1-13. (In Persian with English abstract)
22. Olipra, J. (2020). Price transmission in (de) regulated agricultural markets. Agrekon 59(4): 412-425. https://doi.org/1080/03031853.2020.1831936.
23. Pazhooian, J., Ahmadi, S., Mehrara, M., & Memarnejad, A. (2018). Trade liberalization and tax structure in WTO member less -developed and developing countries. Journal of Tax Research 26(37): 11-40. (In Persian)
24. Sarlak, A., & Ghiasi, M. (2018). The impact of trade liberalization on export growth and import growth in members of the Organization of Islamic Cooperation (OIC). Iranian Journal of Applied Economics 8(25): 61-71. (In Persian with English Abstract). https://doi.org/1001.1.22516212.1397.8.0.17.2.
25. Salarpour, M., & Narooie, H. (2019). Trade liberalization effects on exports and imports growth of some of agricultural products in Iran. New Applied Studies in Management, Economics & Accounting 2(6): 97-112. (In Persian)
26. Salatin, P., & Olfat, A. (2019).The impact of trade liberalization on human development index in selected countries. Journal of Economic Development Policy 6(2): 147-165. (In Persian with English abstract). https://doi.org/22051/EDP.2019.20120.1150.
27. Salem, B., & Yousefpour, N. (2012). Investigating the effects of trade liberalization in developing countries. Economic Journal 12(1): 93-104. (In Persian)
28. Sanusi, A. (2010). Exchange rate pass-through to consumer prices in Ghana: Evidence from structural vector auto-regression, The West African Journal of Monetary and Economic Integration 10(1): 25-54.
29. Sun, Z. & Zhang, D. (2021). Impact of trade openness on food security: evidence from Panel data for central Asian countries. Foods 10(12): 3012. https://doi.org/10.3390/foods10123012.
30. Yazdanshenas, L., Parmeh, Z., & Aghajani, Z. (2010). The effect of tariff policy on domestic prices of poultry and veal in Iran. Journal of Agricultural Economics Research 1(4): 107-124. (In Persian with English abstract)
31. Yosofi, H., & Moghadesi, R. (2013). World price transmission to domestic agricultural markets: Case of wheat, barley and rice. Journal of Agricultural Economics Research 5(17): 81-99. (In Persian with English abstract)