Devaluation of currency is one of the important issue that whole the world concern whether developing or devolved countries.

doi:10.21608/fjard.2019.190385

Devaluation of currency is one of the important issue that whole the world concern whether developing or devolved countries.

Document Type : Research articles.

10.21608/fjard.2019.190385

Abstract

Devaluation of currency is one of the important issue that whole the world
concern whether developing or devolved countries. This concept has important
implications for various economic variables, most notably the impact on the trade
balance of any country. Because the policy of devaluation of the local currency of
any of the most prevalent policies used by many developing and developed
countries because of its positive effects, but many studies have got negative effects
for the devaluation, so this study aimed to identify those effects and aimed to study
the impact of the devaluation of the Egyptian pound on the balance of Egyptian
agricultural trade with the Arab countries during the period 1995-2015.
The study concluded that:
• There is a surplus of the total trade balance with the Arab countries during the
first two years of the period of study. The value of exports to Arab countries was
greater than the value of imports from Arab countries. The total exports of Arab
countries in 1995 and 1996 amounted to 498 and 528 million dollars
respectively, While imports reached about 450 and 510 million dollars in 1995
and 1996, respectively, then the trade balance began to decline since 1997 to
reach about 1191 million dollar in 2015, a significant annual decrease of 1%
reached 181.5 million dollars, The coefficient deviation is about 62.3%, which
indicates that there are large fluctuations in the total value of the Egyptian Trade
balance with the Arab countries in current values during the period of study.
• There was a permanent deficit in the agricultural trade balance with the Arab
countries during the study period, which increased from 177 million dollars in
1995 to 1131.5 in 2015, with significant annual decrease of 1% reached 62.76
million dollars. The coefficient of variation was about 67.3% indicating that
there are large fluctuations in the total value of the Egyptian trade balance with
the Arab countries in current values during the period of study.
• By estimating the relationship between the exchange rate and the agricultural
trade balance and GDP, the results of the Unit Root test for the variables studied
during the study period, it was found that the time series values for all the
variables studied are not stable at their level. The absolute values calculated for
the ADF test are less than the critical values at 5%. Therefore, thus, the time
series of the variables of the study are not static at the level but are still at the
first differences, that means they are integrated first class I (1) during the period
of study.
• The results of the Cointegration test using the Johansen test to study the variables
after taking the first differences found that there is a common integration
between all the variables studied. Which means that these variables cannot be
separated from each other in the long term?
The results of Granger causality test between the agricultural trade balance
with the Arab countries and the real exchange rate and GDP, were as follows:
• Unidirectional causality, which extends from the Egyptian GDP to the real
agricultural trade balance (ATBarb). Therefore, Null hypothesis that the
agricultural trade balance with the Arab countries is not affected by economic
growth can be rejected and accept the hypothesis that economic growth or GDP
affects in the balance of agricultural trade with the Arab countries during the
study period.
• There is no causal relationship between Arab countries' gross domestic product
and Egypt's agricultural trade balance with Arab countries, i.e., economic
growth or GDP of Arab countries does not affect Egypt's agricultural trade
balance with Arab countries.
• There is a unidirectional causal relationship that extends from the real exchange
rate to the Egyptian agricultural trade balance with the Arab countries, meaning
that the change in the real exchange will affect the Egyptian agricultural trade
balance with the Arab countries.
• There is a bilateral causal relationship that extends from the Egyptian GDP to the
GDP of the Arab countries, meaning that both variables are affected and
influenced by each other.
• There is no causal link from the real exchange rate to the Egyptian GDP.
• There is a unidirectional causal relationship that extends from the real exchange
rate to the GDP of the Arab countries.
In examining the extent of J-Curve in the agricultural trade between Egypt and the
Arab countries, the negative correlation between the values of the exchange rate
coefficient on the basis of which the presence of the J-Curve effect is
determined. This negates the existence of J-Curve in the agricultural foreign
trade sector between Egypt and the Arab countries, so currency devaluation
could not improve the agricultural trade balance between Egypt and the Arab
countries in the long run.

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