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Nexus Between Foreign Direct Investment, Exchange Rate, Capital Expenditure and Economic Growth in Egypt

. Unah, Innocent Ogbonnaya, Charles O. Manasseh and Nwonye, G. Nnenna,


Abstract

This study explored the interrelationships among foreign direct investments (FDI), exchange rate, capital expenditure, and economic growth in Egypt, between 1990 and 2020 using fully modified OLS and Dynamic OLS. It employed real gross domestic product (RGDP), gross domestic product per capita (GDPpc) and gross domestic product growth rate (GDPgrt) as the measures of economic growth. The study also used FDI, real exchange rate (REXR) and capital expenditure (CAPEXP) as indicators to measure foreign direct investment, exchange rate and capital expenditure while controlling for interest rate (INTRS) and inflation rate (INFR). The result of Johansen cointegration test shows that there is cointegration among foreign direct investments, exchange rate, capital expenditure and economic growth in Egypt in the long run. Evidence from the FMOLS and DOLS results shows that foreign direct investments, exchange rate, capital expenditure and economic growth in Egypt have a long-run relationship. Thus, the paper recommends pro-growth policies such as economic diversification and strengthening of institutional quality.

 

Keywords: Foreign Direct Investment, Exchange Rate, Capital Expenditure, Economic Growth

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