Political Instability, Uncertainty, Democracy, and Economic Growth in Egypt

This paper aims to determine if there is a relationship between political instability, uncertainty, and political regime, on the one hand, and economic growth in Egypt, on the other. According to the literature, there is a relationship between political regime and stability and economic performance. However, the empirical studies show different results for different regions, different countries, and different periods. Studies concerning the effect of political instability on economic growth are rich in the case of some countries, but are not for other developing countries, like Egypt. This paper tries to estimate the robust relationship between economic growth in Egypt and political instability, uncertainty, and political regime, and estimates their impact on the Egyptian economy during the last four decades. Furthermore, the paper tests the uncertainty impact, resulting from unstable political and economic conditions on economic growth in Egypt. Accordingly, time-series data are used from 1972 to 2013 under the cointegration approach to determine the short- and long-run relationships. Moreover, a GARCH model approach is used in Error-Correction Model (ECM) to introduce the uncertainty impact, and Pesaran’s bound test is used to confirm the results. Results assert the positive impact of the level of democracy on economic growth, while they assert the negative impact of uncertainty on economic growth. However, the impact of political instability on economic growth is ambiguous in the case of Egypt. The results are helpful for policymakers targeting Egypt’s economic growth in the short- and long-runs.