This study empirically estimates the critical parameters of trade deficit in Egypt for the period 1970-2014 by using dynamic ordinary least squares (DOLS) approach of Stock and Watson (1993). The analysis is based on time series from 1970 to 2014. Time series properties of the processes that generate the data be assessed to specify the order of integration for each series to satisfy the conditions of applying the DOLS procedure. Our estimation results show that all variables have its theoretical expected sign, which confirm that there exists a positive and significant relationship among the trade deficit in Egypt and real income, relative domestic prices to foreign prices, International reserves. On the other hand, there is a negative and significant relationship between trade deficit and real effective exchange rate.
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