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The paper examines the export-led growth (ELG) paradigm for Egypt, using historical data from 1977 to 2003. During this period, Egypt changed its economic philosophy from central planning and government intervention to one based on a free market economy. The paper employs a variety of analytical tools, including cointegration analysis, Granger causality tests, and unit root tests, coupled with vector auto regression (VAR) and impulse response function (IRF) analyses. The paper sets three hypotheses for testing the ELG paradigm for Egypt:

• whether GDP, exports and imports are cointegrated
• whether exports Granger cause growth
• whether exports Granger cause investment

In addition to the analysis of the 1977-2003 period, the paper also looks briefly at the impact of the economic reform undertaken in 1991, and weather the ELG hypothesis still holds during the 1991-2003 sub-period.

The results of the paper show the following:

• it supports the hypothesis that exports, imports and GDP are not cointegrated, and that exports Granger cause GDP growth, but they do not support the Granger causality between exports and capital formation
• shocks to exports lead to a significant response in GDP, which in return supports the ELG
• shocks to exports have a low response on capital formation, supporting the weak relationship between capital formation and exports for the case of Egypt
• exports of goods remain one important source of economic growth despite Egypt’s dependency on raw materials

The policy implication of the positive association between exports and economic growth reveals that economic reform policies and the shift towards a free market has helped the economy to reallocate its resources to productive uses. Despite the Government’s efforts in reforming tariff and custom duties services, there is need for further tariff reduction. Abolishing all non-trade barriers on import and export is another important issue facing the government. Furthermore, exchange rate stability is another important economic policy, as it does not only affect imports and exports but also FDI, and the stock market. Finally, the author stressed that the provision of an adequate infrastructure is another important concern for the business communities. Given that the Government has started to give more attention for establishing an adequate infrastructure, it is anticipated that this will have positive impacts on exporters and FDI, and thus finally also on growth.

Summary originally provided by GDNet, an Eldis content partner

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