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International trade theory argues that developing countries berefit from
specializing in primary commodities because of the existance of comparative
advantages and the utilization of the countries relative abundant factors. But at the
same time, international specialization implies a high commodity dependence, which is critisized by som development economists. they stipulate that international
specialization as commodity exporters implies a high economic dependence on
volatile export earnings due to unpredictability and high instability of commodity
prices. The high variability of export earnings undermines macroeconomic stability
by crating national income instability.
This article analyzes the relationship between non-oil export earnings instability
and agricultural growth in Iran.
Awareness of instability can help reduce macroeconomic shocks and its impact
on other economic sectors. This study applies the Feder (1982) growth model and
the Johansen (1988) co-integration system approach to analyze the effects of export
earnings instability. The result shows that export earnings instability did not affect gross domestic product (GDP) in the long run, while it had an impact in the short
run.
JEL Classification: Q 17.