Impact of Exchange Rate Volatility on The Performance of Egyptian Agricultural Exports Using A Vector Error Correction Model أثر تقلبات سعر الصرف على أداء الصادرات الزراعية المصرية باستخدام نموذج متجه تصحيح الخطأ

Motivated by the ongoing debate among Egyptian economists and policymakers regarding the likely impacts of the recent depreciations of the Egyptian Pound on the country’s economic sectors, this study aimed at contributing to this debate by providing empirical evidence of the impact of exchange tare volatility on the Egyptian agricultural exports. Specifically, a vector error correction model (VECM) was applied to quarterly data covering the period 1999:q1 – 2014:q4 to examine short-run and long-run impact of exchange rate volatility on Egypt’s agricultural exports to the world. The econometric results indicate the existence of a statistically significant long-run relationship between exchange rate and Egyptian agricultural exports. The econometric results of the VECM model (with respect to exchange rate) reveal the existence of a long-run relationship between exchange rate and the value of Egypt’s agricultural 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 2% of deviations from long-run equilibrium in the volume of Egyptian agricultural exports to the world are corrected for in the current period. In contrast, the short-run estimates of the VECM illustrated that exchange rate has a statistically insignificant effect on Egyptian agricultural exports. This finding was further confirmed by the results of the Wald Test. Based on these results, the study drew a number of policy recommendations including: i) Egyptian macroeconomic and foreign trade policymakers should be primarily preoccupied with the long-term movements of the exchange rate to design and implement monetary policies that ensure the stability of the exchange rate of the Egyptian Pound and enable Egyptian agricultural exporters to hedge against long-term exchange rate risk, ii) Egyptian agricultural trade policies should not only be focused “agricultural” related aspects but they should also take into account the impacts of “macroeconomic” variables on Egypt’s agricultural exports which also matter for export, and iii) in order to benefit from the recent and expected depreciations in the Egyptian Pound, it is critical that agricultural exporters and export-supporting organizations in Egypt focus their effort on minimizing the production and post-production costs as well as on improving the quality of the agricultural commodities to enhance their ability to compete with other suppliers on the global market for agricultural commodities.