Export Instability and Agricultural Growth: Co-integration Approach

International trade theory argues that developing countries benefit from specializing in primary commodities because of the existence of comparative advantages and the utilization of the countries relative abundant factors. But at the same time, international specialization implies 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.