This study investigates determinants of private investment in Egypt from 1982 to 2021 by employing the Johansen Cointegration Approach and Vector Error Correction Model (VECM). Private investment is estimated as a function of real gross domestic product, real public investment, credit to the private sector, real exchange rate, inflation rate, and a variable indicating the implementation of economic reform programs in Egypt.
The results indicate that real gross domestic product has a positive impact on stimulating private investment in Egypt, aligning with mainstream economic theories. Furthermore, the findings reveal a significantly positive effect of public investment. However, additional analysis is warranted for sub-economic sectors and different periods to determine whether the effect is crowding-in or crowding-out.
Concerning credit facilities to the private sector, the model reveals a negative impact on private investment in Egypt. Two factors may explain this situation: firstly, the high degree of informality in the Egyptian economy, and secondly, the government acquiring the lion’s share of total domestic credit. This implies more effort is needed to encourage formalization, financial inclusion, and an improved business environment. However, the analysis should be complemented with a micro-level study of the financing structure of private enterprises in Egypt.
Additionally, the results indicate that, while the real exchange rate and inflation have a negative effect on private investment, the economic reform variable has a positive impact. This suggests that reducing uncertainty and adopting economic reform programs play a crucial role in achieving economic stability and restoring private sector confidence, with positive implications for long-term investment in Egypt. |
References
- Ajide, Kazeem, and Olukemi Lawanson. 2012. "Modelling the Long Run Determinants of Domestic Private Investment in Nigeria." Asian Social Science 8, no. 13.
- Aly, Haidy, and Heba Youseff. 2021. “Private Investment, Government Investment and the State Budget Deficit in the Egyptian Economy during 1985-2017: Complementarity or Competition.” Journal of the Faculty of Economics and Political Science 22, no. 1: 7–23.
- A, S. Ahmed, Asmaa M., and H. Mohamed. 2020. “An Econometric Study to Estimate the Private Investment Function in Egypt.” Egyptian Journal of Development and Planning, June, 1, no. 28: pp. 5–29.
- Ayeni, Raphae. 2020. “Determinants of Private Sector Investment in a Less Developed Country: A Case of the Gambia.” Cogent Economics & Finance 8, no. 1, 1794279, DOI: 10.1080/23322039.2020.1794279
- BOĞA, S. 2020. “Determinants of Private Investment in Turkey: An ARDL Bounds Testing Approach.” Eurasia Journal of Social Sciences and Humanities
- Central Bank of Egypt. 2023. Monthly Statistical Bulletin. Cairo: Egypt.
- Elbanna, Islam. 2016. "Determinants of Private Investment in Egypt." Economics 5, no. 5, May.
- Jorgenson, D. W. 1971. “Econometric Studies of Investment Behavior: A survey.” Journal of Economic Literature, IX, no. 4: 1111–1147.
- MacKinnon, J. G., A. A. Haug, and L. Michelis. 1999. “Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration.” Journal of Applied Econometrics, 14: 563-577.
- Magableh, S. I. and S. A. Ajlouni. 2013. Determinants of Private Investment in Jordan. Yarmouk University, Department of Economics.
- McKinnon, R. 1973. Money and Capital in Economic Development. Washington, D.C.: The Brookings Institution.
- Morsy, Eman. 2021. “Banking Credit and Private Investment in Egypt: Econometric Study for the Period 1991-2019.” Port Said University Financial and Commercial Journal 2: 130- 173, January.
- Ngoma Gerald, G. Bonga and Thabani Nyoni, 2019. “Macroeconomic Determinants of Private Investment in Sub-Saharan Africa." Journal of Economics and Finance (DRJ-JEF) 4, no. 3 (October, 2019): 01-08.
- Petkov, P. 2013. “An Econometric Analysis of the Investment Function for Bulgaria Allowing for the Impact of Structural Breaks.” Economics 21, no. 2 Eng/2013: 48-70.
- R. 1991. Journal of Economic Literature, 29, no. 3, 1110-1148.
- Ramadan, A. 2014. “Determinants of Private Investment: An Applied Study on the Egyptian Economy.” Journal of Commerce and Finance, no. 2. Tanta University - Faculty of Commerce.
- Rodrik, D. 1991. “Policy Uncertainty and Private Investment in Developing Countries.” Journal of Development Economics, 36, no. 2: 229-242.
- Sallam, S. S. 2019. “Determinants of Private Investment in Egypt: An Empirical Analysis.” Review of Economics and Political Science 4, no. 3 (2019): 257-266. Emerald Publishing Limited 2631-3561, DOI 10.1108/REPS-12-2018-0043.
- Shaw, E. 1973. Financial Deepening in Economic Development. New York: Oxford University Press.
- Tobin, J. 1969. “A General Equilibrium Approach to Monetary Theory.” Journal of Money, Credit and Banking 1, no. 1: 15-29.
- Triplett, R. E., N. Ozdemir, and P. M. Mason. 2021. “Structural Change in the Investment Function”. Journal of Economics and Finance (2022) 46: 220–236, https://doi.org/10.1007/s12197-021-09564-6.
- Wang, D., T. Liu, X. Li, Y. Huang, and Y. Zhou. 2022. “Identifying the Dynamic Influence of Economic Policy Uncertainty on Enterprise Investment Using Functional Data Analysis.” Hindawi Mathematical Problems in Engineering 2022, Article ID 7822710, 15 pages. https://doi.org/10.1155/2022/7822710.
|
