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Competitive Real Exchange Rates are Good for the Poor: Evidence from Egyptian Household Surveys

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  • Ibrahim Elbadawi

  • Eman Refaat

    (Dubai Economic Council)

Abstract

This paper develops a theoretical model that allows for assessing the poverty impact of the real exchange rate (RER), as an economy-wide relative price, in a fully optimizing model at the household and the firm levels. The model motivates empirical estimation of the response of average household wage and non-wage incomes to RER depreciation/undervaluation. In particular, it is possible to assess the extent to which an RER undervaluation (or RER depreciation) is pro-poor, using a precise metric that compares the rate of change of the income of the poor relative to that of the non-poor in response to RER devaluation/depreciation. We estimate the model using national-level panel data from the Egyptian Central Agency for Public Mobilization and Statistics and the ERF’s data bank. We find robust evidence suggesting that strategic real currency depreciation/undervaluation at the macroeconomic level promotes pro-poor income growth at the household level.

Suggested Citation

  • Ibrahim Elbadawi & Eman Refaat, 2015. "Competitive Real Exchange Rates are Good for the Poor: Evidence from Egyptian Household Surveys," Working Papers 966, Economic Research Forum, revised Nov 2015.
    • Handle: RePEc:erg:wpaper:966
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    References listed on IDEAS

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    5. William Easterly, 2003. "IMF and World Bank Structural Adjustment Programs and Poverty," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 361-391, National Bureau of Economic Research, Inc.
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