DT 15/13 - Exports and real exchange rates in a small open economy

This paper analyzes the relationship between exports and real exchange rate (RER) of six
Uruguayan export products: beef, leather, dairy, chemical, metallurgical and plastics, selected for
their importance in total exports during 1993-2011. We considered the sectoral RER and used the
Johansen cointegration methodology to adjust the models. No evidence was found of a long-term
relationship between sectoral exports and its sectoral RER. However, we found a long-term
relationship between beef exports and cattle slaughter, which shows the high supply dependence of
these exports, with an elasticity of 2.7. We also found a long-term relationship between dairy
exports and the international price of skim milk, with a price-elasticity close to one. For
metallurgical industry exports, the results show a long-term relationship with Argentinean GDP -
main destination of those sales - with an income-elasticity of 1.7. In the case of the chemical
industry, we found and elasticity near to one in relation to chemical imports, due to the fact that
Uruguay must import the raw material for this industry. Finally, for plastic exports we found a
cointegration vector with plastic imports and the sectoral RER, showing the importance of relative
prices between exports and imports, and not only for exports.