Working Paper- How Do Trade Margins Respond to the Exchange Rate? The Case of Egypt

Source: The Egyptian Center For Economic Studies
Author(s): Chahir Zaki, Maye Ehab, Aliaa Abdallah

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Using monthly firm-level and sector-level data for the period 2005-2016, this study tries to examine the impact of devaluation on the increase in the quantity of exports, as well as the ability to export new products and/or venture into new export markets. In other words, this paper seeks to examine how both the intensive (the quantity of exports) and the extensive (the probability of exporting a new product to a new destination, exporting a new product to an existing destination or exporting an existing product to a new destination) margins to trade are affected by the devaluation of the Egyptian pound, using firm-level data. Exchange rate is measured by the real effective exchange rate and the exchange rate misalignment. We find that while a depreciation of the real exchange rate increases the value of exports (intensive margin), the quantity of exports is not affected showing that the price effect is more significant than the quantity effect…

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