The Egyptian Economy Post-Revolution: Sectoral Diagnosis of Potential Strengths and Binding Constraints

Amr Hosny, Magda Kandil and Hamid Mohtadi ()

No 767, Working Papers from Economic Research Forum

Abstract: This paper diagnoses the constraints to growth in Egypt at the sectoral level using the 2011 Egyptian revolution as a natural experiment. Combining a quantile regression and a difference in difference methodology, we present empirical evidence in support of our hypotheses that the revolution has had an adverse impact on the Egyptian economy, on average, but with heterogeneous effects across different sectors. We identify the sectors most impacted and their characteristics. Results reveal that Egypt’s fastest growing sectors before the revolution seem to have been the most vulnerable after the revolution. This evidence is supported by our growth diagnosis approach that illustrates that faster growing sectors are constrained by continuous increases in overall prices that appreciate the real exchange rate and threaten export competitiveness (as they erode the benefits accrued to nominal depreciation of currency), but benefit from higher monetary growth and less constraints on credit availability. Despite accommodating monetary policy to ease liquidity constraints and mobilize private sector growth, lingering uncertainty post-revolution has shattered business confidence and hampered recovery efforts. The fastest growing sectors of the economy have been most affected by these constraints. In contrast, the slower growing sectors of the economy mainly suffer from credit constraints, mostly reflecting structural impediments that existed long before the revolution. Our results, which hold under a number of robustness checks, are rather informative to policy makers regarding priorities for the macro economy to revive confidence, contain inflationary pressures, boost competitiveness, and design industrial policy to ease structural impediments and align sectoral growth with macro priorities.

Pages: 25
Date: 2013-09, Revised 2013-09
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Citations: View citations in EconPapers (2)

Published by The Economic Research Forum (ERF)

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