An Empirical Study of Bilateral Trade in Egypt: Gravity Model Approach (2000-2018)

Abstract

The foreign trade market is one of the most effective engines of economic growth in Egypt. Given its importance to the Egyptian economy, the factors influencing export flows between Egypt to its main trading partners need to be studied. The gravity model and panel data method is an essential and common approach for analyzing bilateral trade flows. It has proved to be a valuable method for analyzing a country’s trade potential and bilateral trade. This study applied the gravity model with geographical and financial variables. Moreover, it offers a new empirical perspective to indicate that these variables have analytical power to explain several factors that influence the cross-country trade flows; this research explores the relationship of Egyptian exports to 36 global trading partners across annual data covering a period from 2000 to 2018. In its random effect model of the panel data, the gravity model results showed that the main factors influencing the Egyptian bilateral trade are Egypt’s gross domestic product, importer’s gross domestic product, the border factor, and the distance between Egypt to the main trading partners. Some variables have a positive coefficient, like population, trade openness rate, and regional trade agreements, but they are insignificant for the Egyptian bilateral trade. The language factor is negative and insignificant to Egypt’s trade. These findings will enable Egypt’s government, policymakers, and traders to make suitable decisions to develop the influential role of Egypt’s international trade.