The Impact of Macroeconomic Indicators on Agricultural Trade Balance of Iran

Problem statement: One of the main targets of Iranʹs economic development plans in agricultural sector during the recent years was to augment agricultural exports and establish a positive trade balance in this sector. In this research the impact of macroeconomic indicators of Iran and its 20 trading partners on Iranʹs agricultural trade balance had been investigated. Approach: The ARDL approach was applied during the period of (1960-2005). Results: The domestic real income had the highest effect on the agricultural trade balance relative to other indicators both in the short-and long-run period. On the other hand, domestic money supply and foreign real income had the lowest effect in long-run and short-run respectively. In addition, real exchange rate had the positive impact on trade balance indicating that the depreciation will improve trade balance. But this is not a robust political instrument for establishing long-run equilibrium. Finally, the ECM results implied the fairly high speed of adjustment to equilibrium. Conclusion: The policies that tend to increase domestic income should be planned in such a way that the increased purchasing power of people will be directed to domestic goods rather than foreign goods.