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The impact of foreign capital inflows on economic growth and employment in Egypt

Hanan AbdelKhalik Abouelfarag (Department of Economics, Faculty of Commerce, Damanhour University, Damanhour, Egypt)
Mohamed Sayed Abed (Department of Economics, Faculty of Economic Studies and Political Science, Alexandria University, Alexandria, Egypt)

Journal of Economic and Administrative Sciences

ISSN: 1026-4116

Article publication date: 16 December 2019

Issue publication date: 23 July 2020

938

Abstract

Purpose

The purpose of this paper is to trace the effects of both foreign direct investment (FDI) and external debt on economic growth and employment in Egypt over the 1985–2014 period.

Design/methodology/approach

The empirical analysis includes three stages: an aggregate time series analysis, a panel model that includes six economic sectors and a set of single-sector models. The “autoregressive distributed lag” approach is utilized either in the time series or in the panel models.

Findings

The empirical results of this research reveal that foreign investment exerts a weak positive effect on economic growth and employment in Egypt. External debt exerts an insignificant effect on economic growth and employment in the aggregate model. The sectoral analysis reveals that the effect varies greatly between sectors; the effect of FDI on output is positive in the financial, tourism and other service sectors, while it is insignificant in the agricultural, construction and manufacturing sectors.

Practical implications

It is important not to depend on external debt as an easy way to obtain capital. Greater efforts should be exerted to increase the absorptive capacity of the Egyptian economy so as to benefit from the positive spillover effect of foreign investment as much as possible.

Originality/value

With respect to Egypt, very limited studies have focussed on the role of external debt on growth and that of FDI and external debt on the employment level. There is no general agreement concerning the effect of FDI on economic growth. Therefore, this research explores the effect of FDI and external debt on the Egyptian economy utilizing both aggregate and sectoral data.

Keywords

Citation

Abouelfarag, H.A. and Abed, M.S. (2020), "The impact of foreign capital inflows on economic growth and employment in Egypt", Journal of Economic and Administrative Sciences, Vol. 36 No. 3, pp. 258-276. https://doi.org/10.1108/JEAS-12-2018-0138

Publisher

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Emerald Publishing Limited

Copyright © 2019, Emerald Publishing Limited

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