Date of Award:

1989

Document Type:

Thesis

Degree Name:

Master of Science (MS)

Department:

Applied Economics

Advisor/Chair:

Herbert H. Fullerton

Abstract

The present research measures the role of exchange rate changes in explaining variations of sugar and rice trade. As background for this research, monetary, fiscal, and exchange rate policies of the Dominican Republic since 1970 are reviewed.

The theoretical framework describing the relationship between exchange rate changes and sugar and rice trade has been tested empirically using the Dominican Republic's annual data for the period of 1970-1987. Regression analyses on the import of rice and export of sugar are estimated.

The regression results conform with the expectation that exchange rate variance is most influential for rice import demand and less so for sugar export demand. That is to be expected because the trade environment for sugar is more restricted by noneconomic conditions than the trade environment for rice. The estimated exchange rate elasticity for rice import demand is 1.92, while for sugar export demand it averages 0.098 in the short run and 0.242 in the long run.

Export volume is relatively insensitive to changes in the U. S price for Caribbean sugar but is responsive to changes in the real exchange rate.

Empirical results of this research also indicate that the import demand for rice is highly sensitive to the gross domestic product but less responsive to changes in domestic rice production and exchange rates.

The monetary and fiscal policies review shows that the Dominican government has consistently followed an expansionary fiscal and monetary policy. Over time monetary expansion and increasing government expenditures have resulted in an increasing exchange rate with predicable change in Dominican exports and imports including sugar (exports) and rice (imports ), therefore having some effect on sugar and rice trade as well. Dramatic depreciation of the Dominican peso in the past three years relative to the first 15 years of the data period suggests that further research and reestimation of the link o f monetary and fiscal policies to exchange rates and commodity trade should be done as the data are available to support them .

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