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Financial Development: A Pre-Condition for Foreign Direct Spillover Effects in Egypt

Nevine Mokhtar Eid ()
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Nevine Mokhtar Eid: Faculty of Management Technology, The German University in Cairo

No 12, Working Papers from The German University in Cairo, Faculty of Management Technology

Abstract: The paper investigates the hypothesis that financial development is the leading channel through which the foreign direct investment (FDI) positive spillovers accelerate growth rate. A simultaneous equations model (SEM) was specified using quarterly data within period (1993-2005). The estimated model evidenced a unidirectional causality from economic growth towards FDI. However, the reverse equations traced the indirect impact of the FDI on economic growth through its dualistic influence on both the financial sector as well as domestic investment. Therefore, further financial liberalization is highly recommended if and only if the planned institutional and regulatory reforms are politically supported. Then, financial derivatives were proposed as a part of the liberalization scenario from one side and as a tool towards managing risks in the Egyptian financial market from the other side.

Keywords: Financial development; foreign direct investment; financial integration; financial instruments (search for similar items in EconPapers)
JEL-codes: E22 F36 G32 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2008-07
New Economics Papers: this item is included in nep-cwa
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http://mgt.guc.edu.eg/wpapers/012eid2008.pdf First version, 2008 (application/pdf)

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