The effect of foreign direct investment on Exports and domestic investment in Egypt over the period (1970-2023)

Document Type : Original Article

Author

Economics, Faculty of Economic Studies and Political Science, Alexandria University, Alexandria, Egypt

Abstract

The aim of this paper is to estimate the effect of foreign direct investment (FDI) in Egypt on both exports and total domestic investment. It explores whether FDI acts as a substitute or a complement to exports on one hand, and to gross domestic investment on the other. Additionally, the causality relationships among the three variables in Egypt is examined over the period (1970–2023). To achieve this objective, the study employs the cointegration approach, particularly the ARDL model, to estimate the long-run effect of FDI on exports and domestic investment. Subsequently, the ECM is utilized to estimate short-run relationships. Furthermore, the Granger causality test is applied to determine the direction of causality among the three variables. The study's findings reveal a substitution effect of FDI on both exports and domestic investment in the short run, which shifts to a complementary effect in the long run. The causality analysis highlights a strong and significant interdependence among the three variables, emphasizing that supporting one variable will have a substantial impact on the others.

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