Exchange Rate Movements and the Mexico-United States Agri-Food Trade
A Cointgration Analysis
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The favorable Mexico-United States exchange rate hasbeen cited as an important factor for the growth inexports of agri-food products from Mexico to theUnited States. Some analysts have also emphasizedthe importance of NAFTA and the exchange ratevolatility in the performance of the Mexico-US agri-food trade. An important policy question is theextent to which changes in the Mexico-US exchangerate and its volatility have contributed to thegrowth in agri-food trade between these twocountries. The results from cointegration analysisshow that while changes in exchange rate have apositive effect on t...
The favorable Mexico-United States exchange rate hasbeen cited as an important factor for the growth inexports of agri-food products from Mexico to theUnited States. Some analysts have also emphasizedthe importance of NAFTA and the exchange ratevolatility in the performance of the Mexico-US agri-food trade. An important policy question is theextent to which changes in the Mexico-US exchangerate and its volatility have contributed to thegrowth in agri-food trade between these twocountries. The results from cointegration analysisshow that while changes in exchange rate have apositive effect on trade flows, volatility of theexchange rate has a negative effect on trade flows.The results indicate that the volatility measuregenerated from a GARCH (1,1) model provides moreconsistent results in terms of signs and sizes ofthe estimated coefficients than those from othervolatility measures. While VEC models provideresults supporting the findings of the cointegrationresults on the effects of exchange rate and itsvolatility on trade flows, the short-runelasticities are smaller than the corresponding long-run elasticities.
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