Exchange Rate Volatility and Egyptian Exports

Abstract

This paper aims at providing empirical evidence of the influence of exchange rate volatility on Egyptian exports. Johnson cointegration model was employed to quarterly data covering the period 2000 (quarter 1)-2015 (quarter 4) to examine the long run impact of exchange rate volatility on Egypt’s exports to the world. The results indicate the existence of a statistically significant long run relationship between exchange rate and Egyptian exports. The econometric results of Johnson cointegration model reveal the presence of a long run relationship between exchange rate and the value of Egypt’s exports to the world. With an estimated negative and statistically significant error-correction term, the results showed a slow speed of adjustment toward long run equilibrium and that only 3% of deviations from long run equilibrium in the volume of Egyptian exports to the world are corrected for in the current period. However, the short-run estimates illustrated that the exchange rate has a statistically insignificant effect on Egyptian exports. The paper recommends that Egyptian policymakers should be primarily preoccupied with the long-term movements of the exchange rate to design and implement policies that ensure the stability of the exchange rate of the Egyptian Pound and enable Egyptian exporters to hedge against long-term exchange rate risk. At the same time, to benefit from the depreciation in the Egyptian currency, it is essential that exporters focus their effort on minimizing the production costs and on improving the quality of the exports to enhance their ability to compete with other suppliers on the worldwide market for similar commodities.

Keywords: Exports; Exchange Rates; Cointegration; Egypt; Volatility; Risk

Australian Academy of Accounting and Finance Review, vol 4, issue 3, July 2018, pp 100-110