The Change in the Exchange Rate and its Impact on Agricultural Exports in Egypt

Abstract

The liberalisation of the exchange rate witnessed major fluctuations that subsequently affected many economic variables, including exports. Therefore, this research aimed to identify the effect of the exchange rate of the Egyptian pound against the US dollar on the value of Egyptian agricultural exports during the period 1990–2021, as it was shown through the unit root test. The two separate time series for the two variables are not stable at the level, but they are stable at the first difference; thus, there is a co-integration relationship, that is, the existence of a long-term relationship between the two variables. In measuring this relationship, it is evident that increasing the exchange rate of the Egyptian pound against the US dollar by 1% leads to an increase in the value of Egyptian agricultural exports by 1.14%. The model is free of measurement problems represented by the non-normal distribution of the model’s residuals, the autocorrelation between the regression residuals, and the variance of the errors. Therefore, the research suggests the necessity of verifying the stability of the time series before studying the relationship between economic variables, which prevents the occurrence of the problem of false regression and obtaining unrealistic results. KEYWORDS time series; unit root; co-integration; error correction; normal distribution; autocorrelation