Exchange Rate Impacts on the Composition of Agricultural Trade

Frank Fuller and Dermot Hayes

ISU General Staff Papers from Iowa State University, Department of Economics

Abstract: This paper analyzes the impact of real exchange rate movements on the composition of trade in value-added and intermediate goods. It is shown that following a depreciation of the exporting country’s currency, the cost of importing value-added products declines relative to the cost of adding value to imported intermediate inputs. In equilibrium the composition of the resulting trade vector depends upon the relative magnitudes of price changes and import demand elasticities. Via simulation, the theoretical results are applied to U.S. trade in meat and feed grains. The papers conclusions have relevance for the development of integrated exchange rate, trade, and industrialization policies.

Date: 2011-01-01
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