Economic Analysis of Price Shocks of Production Inputs and Their Impact on Cotton Price in Iran: The Application of Panel Data Vector Auto-Regression (PVAR) Model

Abstract

Cotton is a strategic crop with a critical role in the economy and agriculture. The increasing price of crop inputs is the main challenge for the developing countries, including Iran, so that it is crucial for the economy of the states to recognize the underpinning factors. Accordingly, the present study aimed to identify the relationship between price shocks of cotton production inputs and cotton price in 12 provinces of Iran over the 2000-2016 time period using panel-data vector auto regression (PVAR) model. The results to estimate the model and to check the interrelationships of the research variables in the context of the impulse response functions and analysis of variance showed that the variables of seed price, labor price, and pesticide price have a significant positive relationship with cotton price with the numerical values of 0.296, 0.002 and 0.017, respectively. The relationship of the variables of land and fertilizer prices was found to be negative but non-significant with the numerical values of 8.23 and 0.118, respectively. According to the results, to avoid the price volatility and shocks in input and output markets, it is recommended to organize and regulate the demand and supply system of the inputs and output.