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

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  • Nevine Mokhtar Eid

    () (Faculty of Management Technology, The German University in Cairo)

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.

Suggested Citation

  • Nevine Mokhtar Eid, 2008. "Financial Development: A Pre-Condition for Foreign Direct Spillover Effects in Egypt," Working Papers 12, The German University in Cairo, Faculty of Management Technology.
  • Handle: RePEc:guc:wpaper:12
    as

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    File URL: http://mgt.guc.edu.eg/wpapers/012eid2008.pdf
    File Function: First version, 2008
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    References listed on IDEAS

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    Keywords

    Financial development; foreign direct investment; financial integration; financial instruments;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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