The Impact of Inflation and Government Expenditure on Economic Growth in Egypt- An Econometric Analysis Study for the Period (1980-2024)

This study aims to analyze and measure the impact of inflation and government expenditure on economic growth in Egypt. The study categorizes government expenditure into current and capital expenditures. Both gross fixed capital formation and the employment rate were included as control variables in the model.The study relied on annual time series data for the Egyptian economy during the period (1980–2024), and used the Autoregressive Distributed Lag model(ARDL)  and the Bounds Testing Approach to cointegration to examine the existence of a long-term relationship among the study variables. The Granger causality test was also used to analyze the direction of causal relationships between the model's variables.The study concluded that there is a long-term equilibrium relationship among the model variables. The long-term estimation results showed that total government expenditure has a positive and significant impact on economic growth, while current government expenditure has a negative and significant impact. In contrast, capital government expenditure has a positive and significant effect on economic growth.
Moreover, inflation was found to have a negative and significant impact on economic growth, while both gross fixed capital formation and the employment rate had positive effects—though the effect of employment was not statistically significant.The short-term causality test results revealed a unidirectional causality from current government expenditure to both the inflation rate and the employment rate, and a unidirectional causality from capital expenditure to both economic growth and gross fixed capital formation. The results also confirmed a unidirectional causality from gross fixed capital formation to both economic growth and the employment rate, and a unidirectional causality from the inflation rate to economic growth.In addition, there was a bidirectional causality between current government expenditure and gross fixed capital formation, and a unidirectional causality from total government expenditure to each of economic growth, gross fixed capital formation, and the employment rate.