WHEAT AND RICE SUPPLY RESPONSE IN EGYPT: A VECTOR OF ERROR CORRECTION MODEL

This study aimed at estimating the supply response of harvested areas of wheat and rice in Egypt using secondary data obtained from FAO statistics database during the period of 1972-2012. The presence of unit root and indication of non-stationary time series was tested using augmented dickey test (ADF). The results obtained from Johansen method test of co-integration supported evidence on the long-run equilibrium relationships among variables. Vector error correction model (VECM) was used to estimate long run and short run relationships between harvested areas of wheat and rice and their estimators. The estimators were own price, competing crops prices, and climatic variables like mean of seasonal temperature and precipitation. The results indicated that wheat harvested area is affected significantly and positively by wheat price in the preceding year and negatively by the prices of the competing crops like clover and barley. Rice harvested area is affected significantly and negatively by maize price. The short-run and long-run supply elasticities of wheat and rice are positive and consistent with economic logic. All estimated elasticities were significant and inelastic implying that notably price changes are needed to achieve the desired harvested areas of wheat and rice in Egypt.