Empirical tests of the Marshall–Lerner condition: evidence from Egypt–BRICS commodity trade using ARDL approach

Hebatallah Ahmed Soliman ()
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Hebatallah Ahmed Soliman: Sinai University

Future Business Journal, 2024, vol. 10, issue 1, 1-25

Abstract: Abstract This study seeks to test the validity of the Marshall–Lerner (M-L) condition between Egypt and BRICS countries (five countries: Brazil, Russia, India, China, and South Africa) to determine which industries will benefit from depreciation in the long run by employing the import and export models between Egypt and the BRICS countries at the bilateral and commodity levels by selecting 69 commodities according to the harmonized system (H.S.) 2-digits—these commodities represent a significant portion of Egypt–BRICS trade—and applying the autoregressive distributed lag (ARDL) bounds test over 2001–2022. The results indicate that the M-L condition is not met at the bilateral trade level. At the commodity level, the M-L condition is held only in 8 out of 69 industries. Egypt has a comparative advantage in five of these eight industries—coded 17, 32, 55, 62, and 96—while 71, 79, and 84 have a comparative disadvantage. However, all these industries’ sizes, reflected by their trade share in 2022, are small. The paper builds on previous theoretical and empirical work in this field and fills a knowledge gap by examining the M-L condition in Egypt–BRICS trade. Moreover, addressing aggregation bias through disaggregated analysis—at the bilateral level as well as at the commodity level—the study results may motivate the government and policymakers to ask for more consideration of the structure of Egypt’s exports and imports with BRICS countries to capture the benefits of devaluation and joining the BRICS bloc and provide comprehensive backing for the industries where the M-L condition was met.

Keywords: Egypt; BRICS; Depreciation; Exchange rate; Marshall–Lerner; Elasticity; Trade balance; Import; Export; Commodity level; ARDL model (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1186/s43093-024-00408-3

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