Imported intermediate inputs and Egyptian exports: Exploring the links

This paper aims at exploring the links between firms'­ exporting and importing activities in Egyptian firms. With this aim, a panel dataset of 554 Egyptian manufacturing firms that contains yearly data over the period from 2003 to 2007 is used to estimate the probability of exporting /importing. According to the related literature a complementarity gain is generated when firms are involved in both activities because then they are able to internalize the common fixed costs to access a given foreign market (e.g. Kashara and Lapham, 2013). Stylized facts indicate that firms that start exporting or importing are more likely to become two-traders. The purpose of our research is to better understand this relationship in Egypt, which is the most populated and economically influential country in the Middle East. The main results show a high degree of hysteresis on past international activity, where past experience still most important to determine the continuance in the same activity and we achieve that Egyptian firm's face to higher sunk cost of imported intermediates than sunk cost faced to sell their products in foreign markets.