Macro Determinants of Private Investment in Egypt: Co-integration Approach

نوع المستند : المقالة الأصلية


Assistant Professor of Economics - Macro Economic Policies Center- Institute of National Planning


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.

الكلمات الرئيسية

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