The Production Diversity as an Economic Risk with TVP-VAR Model

Articles in Press

Document Type : Research Paper

Authors

1 Department of Agricultural Economics, science and Research Branch, Islamic Azad University, Tehran, Iran.

2 Department of Agricultural Economics, University of Tehran, Karaj, Iran

3 Department of Agricultural Economics, science and Research branch, Islamic Azad University, Tehran, Iran.

10.22059/ier.2024.377425.1008026

Abstract

The production sector is characterized by a state of uncertainty resulting from its unpredictability and dynamic nature; as a consequence, products and the future of producers are intrinsically linked to insecurity. Risk management in the agricultural sector must therefore be taken into account during policy formulation and planning. The present study spanned the years 1990 to 2022. The assessment of the degree to which crop diversity mitigates risk was conducted utilizing the Herfindahl index. Using the Hodrick–Prescott filter, the income fluctuations were subsequently computed. The income risk associated with five crops was assessed by calculating the discrepancy between the Hodrick-Prescott and the generated income in nominal and foxed modes. Finally, the time-varying parameter vector autoregression (TVP-VAR) was utilized to estimate the effect of crop diversity on two modes of risk to farmer income. The results indicate that there is a long-term correlation between crop diversity and decreased income risk. Additionally, the results indicated that agricultural income was temporarily impacted by the fluctuation shock. To achieve nominal and real shock equilibrium, 4 and 3 cycles were required, correspondingly. That is to say, 25% and 33% of the shock impact could be eliminated in each cycle. Thus, it is recommended that when support policies and optimal agricultural models are formulated, the matter of crop diversity be given particular consideration. Support policies aim to assist a specific subset of crop cultivation and they are unsuitable alternatives that increase the income risk for producers.

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Iranian Economic Review

Articles in Press, Accepted Manuscript
Available Online from 24 November 2024

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