Working Paper 76 - Are Exports the Engine of Economic Growth? An Application of Cointegration and Causality Analysis for Egypt, 1977 - 2003

Abstract

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, (i) whether GDP, exports and imports are cointegrated, (ii) whether exports Granger cause growth, (iii) whether exports Granger cause investment. The paper fails to reject the first two hypotheses, while it fails to accept that exports Granger cause investment. In addition to the analysis of the 1977-2003 period, the paper looks briefly also at the impact of the economic reform undertaken in 1991, and weather the ELG hypothesis still holds during the 1991-2003 sub-period.