Abstract:This study targets to test the J-curve hypothesis in Egypt. The dynamics of the bilateral trade balance with Egypt's main eight trading partners is investigated. The findings of the paper investigate that the J-curve hypothesis does not hold in case of Egypt, especially in the long-term. This is consistent with most of the previous studies tested the same hypothesis in developing countries. The conclusion to policy makers can be presented in two main points. First, the negative impact of the depreciation of th… Show more
Exchange rate policies are among the most important economic tools in the country for their impact on the balance of payments in general and the balance of trade. This study used the autoregressive distributed lag (ARDL) model to estimate the long-term relationship between the exchange rate and the trade balance deficit while clarifying the impact of potential determinants during the period 1990 to 2021 in Egypt. The data for trade balance and its economic determinants (exchange rate, foreign direct investment, and money supply) was obtained from the World Bank. The results indicated that the best model was ARDL (2,1,2,3). The exchange rate is found to have a significant negative effect on the trade balance, confirming the perceptions of the economic theory. The money supply is positively and significantly related to the trade balance while there is no significant effect of foreign direct investment in the long term on the trade balance deficit. Economic adjustments between the four variables occur in the short run (after about 14 months only). The study recommends continuing the policy of liberalizing the exchange rate while working on expanding the production base to increase exports.
Exchange rate policies are among the most important economic tools in the country for their impact on the balance of payments in general and the balance of trade. This study used the autoregressive distributed lag (ARDL) model to estimate the long-term relationship between the exchange rate and the trade balance deficit while clarifying the impact of potential determinants during the period 1990 to 2021 in Egypt. The data for trade balance and its economic determinants (exchange rate, foreign direct investment, and money supply) was obtained from the World Bank. The results indicated that the best model was ARDL (2,1,2,3). The exchange rate is found to have a significant negative effect on the trade balance, confirming the perceptions of the economic theory. The money supply is positively and significantly related to the trade balance while there is no significant effect of foreign direct investment in the long term on the trade balance deficit. Economic adjustments between the four variables occur in the short run (after about 14 months only). The study recommends continuing the policy of liberalizing the exchange rate while working on expanding the production base to increase exports.
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