Revisiting the trade–growth nexus: further evidence from Egypt

Abstract

This paper utilizes Feder's production function in revisiting the relationship between exports and economic growth by testing the hypothesis of the export-led growth in relation to the Arab Republic of Egypt. It also aims to show the difference in the marginal productivities between the export and non-export sectors in Egypt and how the export sector can positively affect the non-export sectors. The model mainly adopts a supply-side description of the economy, using the neo-classical growth approach under the framework of an aggregate production function. The conclusion of the study is that marginal productivities are higher in the export sector than in the non-export sector. This will allow the Egyptian economy to grow faster without having new capital infusion or labor expansion simply by reallocating the limited resources into the export sector. The reallocation of resources to the export sector will produce positive externalities and result in higher productivity for the whole Egyptian economy.

Keywords:

• Egypt
• trade
• economic growth
• sectoral production functions
• externality effects
• JEL Classification: F1
• F14
• F43
• O49

Notes

These authors include Maizels (1968), Emery (1967), Michalopoloulos and Jay (1973), Michaely (1977), Balass (1978), Krueger (1980), Tyler (1981), Feder (1983), Kavoussi (1985), Ram (1987), Rana (1988), Moschos (1989), Fosu (1990), Ahmed and Kwail (1991) and Dodaro (1993).

The effect of these wars on the Egyptian economy is beyond the scope of this paper.