The Impact of Foreign Direct Investment on Economic Growth: Empirical Evidence from Egypt (1980 -2022)

Document Type : Original Article

Authors

1 Assistant Professor of Finance and Economics Faculty of Economics and Political Sciences Cairo University

2 Economic Researcher- Bachelor of Economics Faculty of Economics and Political Sciences Cairo University

Abstract

The impact of foreign direct investment (FDI) on economic booming remains a thorny question for researchers. It has been argued theoretically that FDI is growth-enhancing. However, some existing empirical studies have left researchers and policymakers perplexed as they found an insignificant impact in some special cases. This paper revisited the FDI literature accompanied with analytical review for the FDI spillover transmission channels – that can control the net effect of foreign direct investment on growth – of labor mobility, technological effects, and competition. In addition, it empirically re-examined the impact of Foreign Direct Investment (FDI) on economic growth utilizing time series data of 42 years covering the period 1980 – 2022 in Egypt and estimated Johansen's co-integration and vector error correction model (VECM) in the methodology. The results, based on co-integration analysis, conclusively revealed that FDI affected growth positively in the long run. In addition, VECM has shown that cross-border capital inflows have a significant positive impact on growth in Egypt.

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