ExchangeRateVolatilityandIransBilateralImportsfromTurkey.docVIP

Exchange Rate Volatility and Irans Bilateral Imports from Turkey Hassan HEIDARI, Reza MOHAMMADPOUR*, Vahid KAFILI Abstract This paper investigates the effect of exchange rate volatility as well as some other important explanatory variables on Irans bilateral imports from Turkey during 2003Q1 to 2012Q4 to examine bilateral import elasticity for a specific external supplier in order to improve trade balance. The aim of this paper is to fill the research gap about the mentioned issue particularly for developing countries. The empirical results from ARDL approach indicate that income elasticity is significant and exchange rate volatility is negative and statistically significant for Iran’s bilateral import from Turkey in long run. Keywords: import demand, real effective exchange rate, time-series, Iran, Turkey. JEL Classification: F14, F31, C22. Introduction To explain the impact of exchange rate volatility on international trade flows many empirical studies have investigated. Most empirical findings, which are primarily concerned with exports, confirm that an increase in exchange rate volatility tends to generate uncertainty which may have a negative impact on trade flows. The current study tends to estimate the impact of exchange rate volatility on demand for bilateral imports for Iran, using bilateral import data from selected external source of Iran. Although the effectiveness of import policy depends on the magnitude of each country’s import elasticity with respect to income, price, exchange rate and volatility of exchange rate, the current policies might not be more effective unless they meet import elasticity of particular trading partner countries. Hence, the main objective of this study is to offer that different policies should be implemented for trading partners instead of a single trade policy to improve trade balance. For policy perspective, it is important because trade policies based on aggregate import elasticity might be deceptive, if bilateral import e