Sectoral FDI, Absorptive Capacity and Economic Growth — Empirical Evidence from Egyptian Governorates

Shima'a Hanafy () and Marcus Marktanner
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Shima'a Hanafy: Hankuk University of Foreign Studies
Marcus Marktanner: Kennesaw State University

MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: Using a novel panel dataset of Egyptian governorates for the period 1992–2007, we investigate the effects of aggregate and sectoral foreign direct investment (FDI) on Egypt’s economic growth. We distinguish between FDI in the manufacturing, agriculture and service sector. The similarity of governorates in terms of institutional characteristics like culture, language, and legal framework and the consistency of the data collection process enables an effective estimation of the effect of FDI on Egypt’s economic growth. Employing General Methods of Moments (GMM) panel estimations, we find that neither aggregate nor sectoral FDI has an unconditional effect on economic growth. We also reject human capital as a channel of absorptive capacity, but reveal an interesting effect of FDI in the service sector on economic growth in interaction with domestic private investment (DPI). Service FDI promotes economic growth only if the host governorate has a minimum threshold of DPI to absorb foreign knowledge and technology.

Keywords: Foreign direct investment; sectoral FDI; absorptive capacity; economic growth; Egypt. (search for similar items in EconPapers)
JEL-codes: F21 F23 F43 O47 O53 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2015
New Economics Papers: this item is included in nep-ara, nep-fdg, nep-gro, nep-hme and nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:201537

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