Núm. 56 (2022)

Impact of the Exchange Rate Volatility on Agricultural Trade between U.S. and Mexico (1990-2017)

Francisco Venegas Martínez
Instituto Politécnico Nacional
Publicado febrero 15, 2022


Objective: this paper assesses the impact of the exchange rate volatility on the trade of corn and wheat between U.S. and Mexico during the 1990-2017 period, which considers the 1994 and 2008 Mexican exchange rate crises. Methodology: the exports function is modelled through an Error Correction Model (ECM) and, subsequently, for a robustness analysis, a Factor-Augmented Vector Autoregression (FAVAR) model is applied. Findings: the exchange rate variability has no statistically significant influence on corn and wheat spot price variability. The results may be attributable to the volume of international trade flows in both commodities. Finally, the exchange rate variability has a statistically significant influence on the futures basis of corn but not for wheat. Limitations: since there is no monthly data, prices for the agricultural products consists of monthly averages obtained from daily data of spot prices of corn and wheat. Practical Implications: the obtained results are consistent with one part of the specialized literature, which argues that exchange rate volatility does not affect agricultural trade. Social implications: improving the understanding of the effect of the exchange rate on corn and wheat trade between Mexico and the U.S. is crucial since corn is a fundamental part of the diet in Mexico and wheat in the U.S. Originality: As far as we know, there is no research that analyzes the effect of the exchange rate on cereal trade in these two countries during 1990-2017 with the economic techniques we use.


  1. Anderson, M. and Garcia, P. (1989). Exchange Rate Uncertainty and the Demand for U.S. Soybeans. American Journal of Agricultural Economics, 71(3), 721-729.
  2. ASERCA (2002). Apoyos y Servicios a la Comercializacion Agropecuaria; Subprograma de Apoyos Directos a Cobertura de Precios Agrícolas (Mexican Agricultural Price-Insurance Program). Personal communication with the Program’s Director. The information given by ASERCA is available to the general public. Most of the information can be found at ASERCA’s web page, which is http://www.sagarpa.gob.mx
  3. Asseery, A. and Peel, D. A. (1991). The Effects of Exchange Rate Volatility on Exports. Economics Letters, 37(2); 173-177.
  4. Babula R. A., Ruppel F. J and Bessler, D. A (1995). U.S. Corn Exports: The Role of the Exchange Rate. Agricultural Economics, 13(2), 75-88.
  5. Beenstock, M. (1988). An Econometric Investigation of North – South Interdependence. In Macroeconomic Interactions Between North and South (Ed. D. Currie and D. Vines). Cambridge: Cambridge University Press.
  6. Bollerslev, T. P. (1986). Generalized Autoregressive Conditional Heteroscedasticity. Journal of Econometrics, 31(3), 307-327.
  7. Benavides-Perales, G., I. E. Téllez-León and F. Venegas-Martínez (2018). Impact of the Banking and External Sectors on the Mexican Agriculture, 1995-2015. Agricultural Economics–Czech, 64(1), 36–49.
  8. Brooks, C. (2008). Introductory Econometrics for Finance. Cambridge University Press. Second edition.
  9. Chambers, R. G. and Just, R. E. (1979). A Critique of Exchange Rate Treatment in Agricultural Trade Models. American Journal of Agricultural Economics, 61(2), 249-257.
  10. Chowdhury, A. (1993). Does Exchange Rate Volatility Depress Trade Flows? Evidence from Error-Correction Model. Review Economics and Statistics, 75(4), 700-706.
  11. Cushman, D. O. (1988). U.S. Bilateral Trade Flows and Exchange Rate During the Floating Period. Journal of International Economics, 24(2), 317-330.
  12. Dornbusch, R. (1985). Policy and Performance Links Between LDC Debtors and Industrial Nations. Brookings Papers on Economic Activity. 2, 303-356.
  13. Engle, R. F. (1982). Autoregressive Conditional Heteroskedasticity with Estimates of the Variance of U.K. Inflation. Econometrica, 50(4), 987-1008.
  14. Engle, R. F. and Granger, C. W. J. (1987). Co-Integration, and Error Correction : Representation, Estimation and Testing. Econometrica, 55(2), 251-276.
  15. Franke, G. (1991). Exchange Rate Volatility and International Trade. Journal of International Money and Finance, 10(2), 292-307,
  16. Gilbert, C. L. (1989). The Impact of Exchange Rates and Developing Country Debt on Commodity Prices. Economic Journal, 99(397), 773-784.
  17. Gilbert, C. L. (1991). The Response of Primary Commodity Prices to Exchange Rates. In Phlips, L. (ed.), Commodity, Futures and Financial Markets. Dordrecht: Kluwer, pp. 87-124.
  18. Giovannini, A. (1988). Exchange Rates and Traded Goods Prices. Journal of International Economics, 24(1-2), 45-68.
  19. International Monetary Fund, 1984. Exchange Rate Volatility and World Trade International Financial Statistics. Occasional paper No. 28. July. IMF Washington, DC.
  20. Jumah, A. and Kunst, R. M. 2001. The Effects of Dollar/Sterling Exchange Rate Volatility on Futures Markets for Coffee and Cocoa. European Review of Agricultural Economics, 28(3), 307-328.
  21. Kehoe, T. J. 2000. The International Financial Crisis: Macroeconomic Linkages to Agriculture: Discussion. American Journal of Agricultural Economics, 82(4), 703-706.
  22. Kofman, P. and Viaene, J. (1991). In Phlips, L. (ed.), Commodity, Futures and Financial Markets. Dordrecht: Kluwer.
  23. Langley, V. S., Giugale, M., Meyers, W. H., Hallahan, C. (2000). International Financial Volatility and Agricultural Commodity Trade: A Primer. American Journal of Agricultural Economics, 82(3), 695-700.
  24. Maskus, K. E. (1986). Exchange Rate Risk and U.S. Trade: A Sectoral Analysis. Federal Reserve Bank of Kansas City Economic Review, 71(3), 16-28.
  25. McKenzie, M. D. (1999). The Impact of Exchange Rate Volatility on International Trade. Journal of Economics, 13(1), 71-106.
  26. Miranowski, J. A. (2000). Modelling How a Financial Crisis Affects World Agriculture: Discussion. American Journal of Agricultural Economics, 82(3), 709-717.
  27. Mohanty, S. and Peterson, W. (1999). The Effects of Real Exchange Rate Variability on U.S. Soybean Exports. Paper presented at the International Trade Research Consortium, New Orleans, pp. 11-14.
  28. Pick, D. H. (1990). Exchange Rate Volatility and U.S. Agricultural Trade Flows. American Journal of Agricultural Economics, 72(3), 694-700.
  29. Ridler, D. and Yandle, C. A. (1972). A Simplified Method for Analyzing the Effects of Exchange Rate Changes on Exports of a Primary Commodity. IMF Staff Papers. 19(3), 559-578.
  30. SAGAR (Secretariat of Agriculture, Livestock and Rural Development Agricultural Statistics Centre) (1999). Present Situation and Perspective of Corn Production in Mexico. SAGAR Research Paper. Mexico. This paper is available at http://www.sagarpa.gob.mx
  31. Shane, M. D. and Liefert, W. M. (2000). The International Financial Crisis: Macroeconomic Linkages to Agriculture. American Journal of Agricultural Economics, 82(3), 682-687.
  32. Taylor, S. J. (1985). The Behaviour of Futures Prices Overtime. Applied Economics, 17(4), 713-734.
  33. Venegas-Martínez, F. (2008). Riesgos financieros y económicos. Productos derivados y decisiones económicas bajo incertidumbre, 2da. Edición. Cengage Learning, México.