Source: Economic Research Forum
Author(s): Nada Shokry and Mohamed Bouaddi
Original Link: http://erf.org.eg/publications/devaluation-is-it-contractionary-or-expansionary-to-economic-sectors-the-case-of-egypt-2/
This paper investigates the effect of changes in exchange rate on sectoral GDP in Egypt in the period between 1982 and 2014. For this purpose, the study uses a MIDAS regression to compare between the sign and magnitude of the effect of two exchange rate measures on 22 subsectors and 4 aggregate sectors’ production. One measure is the monthly deflated official bilateral exchange rate of EGP against the US dollar and the other one is the annual real effective exchange rate of the EGP. Interestingly, the results show consistent positive inelastic effect of changes in real EX rate on sectoral production, while showing consistent positive yet highly elastic effects of changes in REER. Analyzing the results of the REER estimation, most of the low elasticity sectors are public, non-tradable subsectors and contribute by only little to GDP, while most tradable large sectors are highly elastic.
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