On The Impact of Exchange Rate Depreciation on Bilateral Trade of Egypt and China: An ARDL Approach

Abstract

The main purpose of this study is to examine the relationship of exchange rate depreciation with Egypt and China bilateral trade. The Autoregressive Distributed Lag (ARDL) approach to co-integration is employed to investigate the both long run and short run relationship between the real depreciation and bilateral Trade in the case of Egypt and China over the period of 1994 to 2019. Estimation results confirm the existence of the long-term impact of depreciation on Egypt’s trade flows between the two countries. The results also revealed that growth in domestic income improved the Egypt’s trade balance while growth in China income decreased the bilateral trade flows. Over time, the findings revealed that the J-curve phenomena hold in the long-run. Results suggest two main conclusions to policy makers. First, The improvement of the trade balance needs inclusive support of Egypt's export stimulus policies. Second, Second, China presents enormous opportunities for Egyptian exports to this growing market.