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Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Aggregate and Heterogeneous Sectoral Growth Effects of Foreign Direct Investment in Egypt
AU - Ingham, Hilary
AU - Read, Robert
AU - Elkomy, Shimaa
PY - 2020/11/17
Y1 - 2020/11/17
N2 - This paper investigates the sectoral impacts of FDI on growth in Egypt between 1990 and 2007 based upon a unique data set. It highlights the aggregation bias inherent in many empirical studies that focus solely on the economy-wide effects of foreign investment. Aggregate inflows of FDI are shown to be detrimental to the country’s economic growth performance, possibly as a result of the ‘crowding-out’ of more productive domestic investment. Some positive sector-specific effects however, are found for investment in Manufacturing & Petroleum, which also has beneficial spillovers into other sectors. FDI in the Finance & Retail and Telecommunications & Information Technology sectors are found to generate significantly negative growth effects while those in Services and Tourism are negative but generally insignificant. These findings suggest that ‘market-seeking’ FDI in certain sectors has conspicuous ‘crowding-out’ effects, possibly owing to insufficient domestic absorptive capacity. The results of this study further demonstrate the importance of potential sectoral heterogeneity of own sector and inter-sectoral economic growth effects of FDI. It therefore highlights the critical need for policy makers to take a more disaggregated sectoral-level evaluation of the benefits of foreign investment, particularly in developing economies such as Egypt.
AB - This paper investigates the sectoral impacts of FDI on growth in Egypt between 1990 and 2007 based upon a unique data set. It highlights the aggregation bias inherent in many empirical studies that focus solely on the economy-wide effects of foreign investment. Aggregate inflows of FDI are shown to be detrimental to the country’s economic growth performance, possibly as a result of the ‘crowding-out’ of more productive domestic investment. Some positive sector-specific effects however, are found for investment in Manufacturing & Petroleum, which also has beneficial spillovers into other sectors. FDI in the Finance & Retail and Telecommunications & Information Technology sectors are found to generate significantly negative growth effects while those in Services and Tourism are negative but generally insignificant. These findings suggest that ‘market-seeking’ FDI in certain sectors has conspicuous ‘crowding-out’ effects, possibly owing to insufficient domestic absorptive capacity. The results of this study further demonstrate the importance of potential sectoral heterogeneity of own sector and inter-sectoral economic growth effects of FDI. It therefore highlights the critical need for policy makers to take a more disaggregated sectoral-level evaluation of the benefits of foreign investment, particularly in developing economies such as Egypt.
KW - FDI
KW - Growth
KW - Egypt
KW - Sectoral differences
KW - economic growth
KW - sectors
U2 - 10.1111/rode.12698
DO - 10.1111/rode.12698
M3 - Journal article
VL - 24
SP - 1511
EP - 1528
JO - Review of Development Economics
JF - Review of Development Economics
SN - 1363-6669
IS - 4
ER -