Free trade and economic growth of Egypt

Free trade relations have become an important issue in both trade and development literature since the 1950s. From this period, 1950-1959, until the end of the 1960s, the economy of Egypt was protected as a result of the adoption of import substitution policies and excessive government intervention in economic activities. Since 1970, when an open-door policy was adopted, Egypt has striven to liberalise its markets with the aim of enhancing economic growth, with rewarding results. This study has quantified the effect of changes in economic policy, particularly trade liberalisation, on economic growth for Egypt during the period 1970-2006, by addressing some challenges remaining in theoretical and empirical literature on free trade and economic growth. This period witnessed a strong shift in economic policy towards a more export growth oriented stance. It covered the reforms of 1974 and 1991, as well as the establishment of the WTO in 1995 and Egypt's accession to it. Two models were constructed: the first one attempted to deal with the causality problem by re-examining the causality between exports and economic growth based on the Vector Error Correction Model (VECM) in the context of the Egyptian economy. The second model, a Simultaneous Equation Model (SEM), was developed to deal with the endogeneity problem and investigate the impact of selected openness indicators on economic growth in Egypt. The most important finding is the strong positive and bi-directional relationship between Egyptian exports and its economic growth. This finding is in line with the theoretical argument of the ability of developing countries such as Egypt to benefit from the free trade movement, which not only helps them to benefit from knowledge spillover but also to raise their productivity. The role of human capital in growth and exports was also shown to be significant. Similar findings were obtained for countries at different stages of development (low- and middle-income). It is concluded that, like Egypt, all groups will benefit from trade openness, regardless of the degree of development, with respect to the positive role of human capital to enable them to absorb new technologies from the developed countries.EThOS - Electronic Theses Online ServiceGovernment of Egypt (Sponsor)GBUnited Kingdo