Abstract
Recent instability in Egypt has brought attention to the role of risk in this important economy. At the same time, there is room in the ever-expanding literature on the link between exchange-rate volatility and trade flows, particularly for individual commodities, in Egypt. This study examines 36 separate export and import industries vis-à-vis the United States, from 1994 to 2007. An application of cointegration analysis and error-correction modeling finds evidence of long-run relationships for many import and export industries, with exports increasing due to higher risk in a large proportion of cases. Although most industries, particularly in imports, are nevertheless unaffected, our results differ from other studies in the literature. An analysis of our industry-level results shows that chemical imports, and exports of industries with large trade shares, are more likely to increase than are other products or imports.
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Notes
See Sauer and Bohara (2001, p. 145) for classification of countries.
Two other studies have looked at Egypt’s trade flows but have not included a measure of exchange rate volatility in their model. Abu Hatab et al. (2012) examine Egypt’s trade with China, but focus on trade intensity rather than the exchange rate. They find low value in Egypt’s trade intensity index, implying that Egyptian trade with China is less than what it should be. The intra-industry trade index also happens to be low, implying that trade between the same firms in both countries is also less that what it should be. Once the comparative advantage index is calculated for each of the ten single digit industries that are traded between two countries, they show that Egypt has strong comparative advantage in mineral fuel (SITC3), crude materials (SITC2), manufactured goods (SITC6) and food and live animals (SITC0). This comparative advantage, however, has been declining for some goods. China is shown to have comparative advantage in manufactured goods (SITC6 and SITC8), and machinery and transport equipments (SITC7). Kulkarni (1996) investigates the J-curve and finds evidence of the J-curve effect and shows that the Marshall-Lerner condition is met for aggregate Egyptian, as well as Ghanian, trade. Finally, Bahmani-Oskooee and Hosny (2013) estimate Egypt’s industry-level trade flows for 59 industries and find that the Marshall–Lerner condition (whereby a devaluation will help a country’s trade balance only if the sum of its trade elasticities exceeds one) holds in 39 cases.
For a detailed step by step construction of ECM see Bahmani-Oskooee and Tanku (2008).
For graphical presentation of these tests see Bahmani-Oskooee et al. (2005) and for some other applications of the ARDL approach see For other applications of this approach see Halicioglu (2007), Narayan et al. (2007), Tang (2007), Mohammadi et al. (2008), Wong and Tang (2008), Chen and Chen (2012), and Wong (2013).
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Bahmani-Oskooee, M., Hegerty, S.W. & Hosny, A.S. The effects of exchange-rate volatility on industry trade between the US and Egypt. Econ Change Restruct 48, 93–117 (2015). https://doi.org/10.1007/s10644-014-9153-3
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DOI: https://doi.org/10.1007/s10644-014-9153-3