Raouf, M., Boshra Ghaly, S., Wiebelt, M., Elhamalawy, F. (2024). External Shocks, Exchange Rate Adjustments, and Income Distribution in Egypt. test, 32(3), 106-140. doi: 10.21608/inp.2024.276729.1082
Mariam Raouf; Sherine Boshra Ghaly; Manfred Wiebelt; Fatma Elhamalawy. "External Shocks, Exchange Rate Adjustments, and Income Distribution in Egypt". test, 32, 3, 2024, 106-140. doi: 10.21608/inp.2024.276729.1082
Raouf, M., Boshra Ghaly, S., Wiebelt, M., Elhamalawy, F. (2024). 'External Shocks, Exchange Rate Adjustments, and Income Distribution in Egypt', test, 32(3), pp. 106-140. doi: 10.21608/inp.2024.276729.1082
Raouf, M., Boshra Ghaly, S., Wiebelt, M., Elhamalawy, F. External Shocks, Exchange Rate Adjustments, and Income Distribution in Egypt. test, 2024; 32(3): 106-140. doi: 10.21608/inp.2024.276729.1082

External Shocks, Exchange Rate Adjustments, and Income Distribution in Egypt

المجلة المصرية للتنمية والتخطيط
Volume 32, Issue 3, September 2024, Pages 106-140    PDF (11.74 M)
Document Type: المقالة الأصلية
DOI: 10.21608/inp.2024.276729.1082
Authors
Mariam Raouf* 1; Sherine Boshra Ghaly2; Manfred Wiebelt3; Fatma Elhamalawy1
1معهد التخطيط القومي
2أكاديمية السادات للعلوم الإدارية معهد التخطيط القومي
3Kiel Institute for the World Economy
Abstract
This study examines the complex dynamics of the Egyptian economy in response to external shocks and currency devaluation. Applying a SAM-based CGE model, the research focuses on the economic linkages between production sectors, households, government and the rest of the world, on resource competition on markets for production factors and goods, and on macroeconomic constraints in the government budget, savings and investment, and foreign exchange revenues. Key findings reveal the substantial impact of differential domestic inflation (45%) and the challenges posed by limited foreign exchange inflows (32%) and eroded export competitiveness (19%). External shocks, including the COVID-19 pandemic and geopolitical events, yield nuanced impacts on GDP, employment, household consumption, and inequality. Sectoral analyses highlight varied effects on export-oriented and non-tradable industries. As Egypt grapples with global challenges, the study emphasizes the need for targeted policies balancing export competitiveness, foreign savings, and domestic stability. The findings contribute practical insights for policymakers navigating the complexities of a dynamic global economy.
Keywords
Exchange Rate; External Shocks; Macroeconomics; Egyptian Economy; CGE
References

References

  • Abay, K., F. Abdelradi, C. Breisinger, X. Diao, P. Dorosh, K. Pauw, J. Randriamamonjy, M. Raouf, and J. Thurlow 2022. Egypt: Impacts of the Ukraine and Global . Crises on Poverty and Food Security. Global Crisis Country Series. Country Brief 18. Washington, DC: International Food Policy research Institute.
  • Abed, Mohamed Sayed. 2020. “Testing the Twin-deficits Hypothesis and Feldstein-Horioka puzzle in Egypt during the period 1974-2018.” ESALEXU 5, no. 9. DOI: 21608/esalexu.2020.117506
  • Abedini, J. and N. Pêridy 2008. The Greater Arab Free Trade Area(GAFTA): An Estimation of its Trade Effects. Journal of Economic Integration 23(4): 848-872
  • Abu-Ismail, K. and H. Kheir-El-Din 2005. Exchange Rate Policy and Economic Growth in Egypt: A CGE Model Approach.
  • Afonso, A., and J. Coelho. 2021. “Current Account Targeting Hypothesis versus Twin Deficit Hypothesis: The EMU Experience of Portugal.” REM Working Paper, 182-2021. SSRN: https://ssrn.com/abstract=3870802or http://dx.doi.org/10.2139/ssrn.3870802
  • Ahmed, N., & Ghani, G. M. (2007). "Trade liberalization and economic growth in Egypt: An empirical investigation." Economic Modelling, 24(5), 856-872.
  • Alazzawi, S. and V. Hlasny 2019. Disparities in the Cost of Living Changes after a Large-Scale Devaluation: The Case of Egypt 2016. Topics in Middle Eastern and North African Economies, electronic journal, 21, 2, Middle East Economic Association and Loyola University Chicago, 2019, http://www.luc.edu/orgs/meea/
  • Alexander, S. S. 1952. “Effects of a Devaluation on a Trade Balance.” Staff Papers-International Monetary Fund, 2 no. 2, 263-278.
  • Al-Riffai, P., J. Blohmke, C. Breisinger and M. Wiebelt (2015). Harnessing the Sun and Wind for Economic Development? An Economy-Wide Assessment for Egypt. Sustainability 7(6): 7714- 7740.
  • Alternative Policy Solutions (APS). 2023 American University in Cairo, Retrieved from: https://aps.aucegypt.edu/en/articles/935/qanda-on-devaluation
  • Amaral, A. J., and M. C. Breitenbach. 2021. “The Marshall-Lerner Condition in the Fragile Five Economies: Evidence from the ARDL Bounds Test Approach.” Business & Economics Research Journal 12, no. 4.
  • Armington, P. 1969. “A Theory of Demand for Products Distinguished by Place of Production.” IMF Staff Papers 16 (1): 159-178.
  • Bluedorn, J., and D. Leigh. 2011. Revisiting the Twin Deficits Hypothesis: The Effect of Fiscal Consolidation on the Current Account.” IMF Economic Review 59, no. 4: 582-602.
  • BNP Paribas Economic Research. 2019. “Mixed Trade Performance.” https://economic-research.bnpparibas.com/html/en-US/Mixed-trade-performance-10/18/2019,36423
  • Breisinger, C., A. Mukashov, M. Raouf and M. Wiebelt (2019). Phasing Out Energy Subsidies as Part of Egypt’s Economic Reform Program: Impacts and Policy Implications. In: World Bank Group. Understanding Poverty and Inequality in Egypt. Background Papers. Washington, DC: World Bank Group, 127-158.
  • Breisinger, C., M. Raouf, A. Abdelatif and M. Wiebelt (2020). Economic impact of COVID-19 on tourism and remittances: Insights from Egypt. In J. Swinnen and J. McDermott (eds). 2020. COVID-19 and global food security. Washington, DC: International Food Policy Research Institute, 56-59.
  • Collier, P., and V. Joshi. 1989. “Exchange Rate Policy in Developing Countries.” Oxford Review of Economic Policy 5, no. 3: 94-113. https://doi.org/10.1093/oxrep/5.3.94
  • Dervis, K., de Melo, J. and Robinson, S. 1982. General Equilibrium Models for Development Policy. Cambridge University Press.
  • Dissou, Y., and Y. Nafie. 2021. “On the Link between Current Account and Fiscal Imbalances in the Presence of Structural Breaks: Empirical Evidence from Egypt.” The Quarterly Review of Economics and Finance 79: 15-27. https://doi.org/10.1016/j.qref.2020.12.004
  • Edwards, S., and S. Van Wijnbergen 1989. “Disequilibrium and Structural Adjustment.” Handbook of Development Economics 2: 1481-1533. https://doi.org/10.1016/S1573-4471(89)02015-2
  • El Baradei, L. 2019. Egypt’s Currency Devaluation & Impact on the Most Vulnerable.” International Relations and Diplomacy 7, no. 7: 303-316.
  • Elbadawi, I. and R. Soto 2014. Economic Effects of Exchange Rate Devaluation in Egypt: A CGE Analysis
  • Elbagory, K. 2017. The Effect of Currency Devaluation on Egyptian Economy. https://www.researchgate.net/publication/360143483
  • Elsherif, M. 2016. “Exchange Rate Volatility and Central Bank Actions in Egypt: Generalized Autoregressive Conditional Heteroscedasticity Analysis.” International Journal of Economics and Financial Issues, ISSN: 2146-4138. Retrieved from: econjournals.com.
  • Fukui, M., E. Nakamura, and J. Steinsson. 2023. “The Macroeconomic Consequences of Exchange Rate Depreciations.” National Bureau of Economic Research, Working Paper 31279, May. Retrieved from: http://www.nber.org/papers/w31279
  • Grekou, C. 2019. “From Nominal Devaluations to Real Depreciations.” International Economics 157: 68-81. https://doi.org/10.1016/j.inteco.2018.07.004
  • Helmy, H. E. 2018. “The Twin Deficit Hypothesis in Egypt.” Journal of Policy Modeling 40, no. 2, 328-349. https://doi.org/10.1016/j.jpolmod.2018.01.009
  • Helmy, I., H. Ghoneim, and K. Siddig 2019. Progressive or Regressive: Rethinking Subsidies Reforms in Egypt. Paper accepted for presentation in the International Conference on Economic Modeling and Data Science (EcoMod2019) in Ponta Delgada, Azores, Portugal on July10-12, 2019.
  • Helmy, O., and C. Zaki. 2017. “The Nexus between Internal and External Macroeconomic Imbalances: Evidence from Egypt.” Middle East Development Journal 9, no. 2, 198-232. https://doi.org/10.1080/17938120.2017.1368217
  • Hendy, R. and C. Zaki 2013. "Assessing the Effects of Trade Liberalization on Wage Inequalities in Egypt: A Microsimulation Analysis," The International Trade Journal 27(1): 63-104.
  • https://www.elibrary.imf.org/view/journals/024/1952/001/article-A003-en.xml
  • Hemming, R. and Kochhar, K. 1990. The Role of Fiscal and Monetary Policy in the Growth Process, in Strategies for Structural Adjustment: The Experience of Southeast Asia, papers presented at a seminar held in Kuala Lumpur, Malaysia, June 28-July 1, 1989, by Ungku Abdul Aziz ( Editor), International Monetary Fund. Ikram, K. 2018. The Political Economy of Reforms in Egypt: Issues and Policymaking since 1952. American University in Cairo Press. https://doi.org/10.2307/j.ctv2ks7195
  • International Monetary Fund (IMF). (2018). "Egypt: 2018 Article IV Consultation and Third Review Under the Extended Fund Facility." IMF Country Report.
  • International Monetary Fund. 2023. “Arab Republic of Egypt: Request for Extended Arrangement Under the Extended Fund Facility-Press Release;” and Staff Report, 10 Jan. Retrieved from: https://www.imf.org/-/media/Files/Publications/CR/2023/English/1EGYEA2023001.ashx
  • Izquierdo, A., W. Brown, B. Ames, and S. Devarajan. 2001. “Macroeconomic Policy and Poverty Reduction.” In Macroeconomic Policy and Poverty Reduction. Washington, D.C.: International Monetary Fund.
  • Johansen, L. 1960. A Multi-Sectoral Study of Economic Growth. Amsterdam: North-Holland Publishing Co.
  • Lofgren, H. and M. El-Said 2001. "The Impact of an Exchange Rate Devaluation on Egyptian Agriculture." TMD Discussion Paper No. 64, IFPRI.
  • Lofgren, H., R.L. Harris, and S. Robinson 2002. A standard computable general equilibrium (CGE) model in GAMS. Washington, DC: International Food Policy Research Institute.
  • Maher, M., Y. Zhao, and C. Tang. 2022. “The Taylor Rule in Egypt: Is it Optimal? Is there Equilibrium Determinacy?” Journal of Economic Integration 37, no. 3 (September): 484-522, Retrieved from: https://doi.org/10.11130/jei.2022.37.3.484
  • OECD (Organisation for Economic Co-operation and Development). 2020. “OECD Review of Foreign Direct Investment Statistics: Egypt.” www.oecd.org/investment/OECD-Review-of-Foreign-Direct-Investment-Statistics-Egypt.pdf
  • Osman, O. 2018. The Egyptian Pound Exchange Rate Cycle. Retrieved from: https://www.academia.edu/36806435/The_Egyptian_Pound_Exchange_Rate_Cycle
  • Serag, E., F. Ibrahim, Z. El Araby, M. Abd El Latif, M. El Sarawy, D. El Zaabalawy, S.A. El Dib, K Salem, C. Breisinger, and M. Raouf. 2021. A 2019 Nexus Social Accounting Matrix for Egypt. MENA RP Working Paper 35. Washington, DC: International Food Policy Research Institute (IFPRI). https://doi.org/10.2499/p15738coll2.134544
  • Shokry, N. and M. Bouaddi. 2017. Devaluation: Is it Contractionary or Expansionary to Economic Sectors? The Case of Egypt. American University Cairo (mimeo).
  • Tanzi, V. 1982. “Fiscal Disequilibrium in Developing Countries.” World Development 10, no. 12, 1069-1082. https://doi.org/10.1016/0305-750X(82)90019-5
  • Williamson, J. 1976. “The Monetary Approach to the Balance of Payments.” The Economic Journal, 86(344), 881-884. https://doi.org/10.2307/2231463
  • World Bank 2018. "The Impact of Special Economic Zones in Egypt: The Case of SCZone." World Bank Report.
  • Zaki, C. 2017. “An Overview of Structural Imbalances in Egypt.” Égypte/Monde arabe, 99-124. http://journals.openedition.org/ema/ 3727
Statistics
Article View: 504
PDF Download: 357