Commodity trade between EU and Egypt and Orcutt’s hypothesis

Orcutt hypothesized that trade flows respond faster to a change in the nominal exchange rate as compared to a change in relative prices. Although he recommended testing his hypothesis at commodity level, due to lack of commodity prices previous studies used aggregate trade flows of one country with the rest of the world and did not support the hypothesis. In this paper, we test Orcutt’s hypothesis using trade flows of 59 industries that trade between European Union and Egypt. These are the industries that account for 100 % of the trade between the two regions and for which price data are available. We find support for the Orcutt’s hypothesis in 1/3rd of industries.