FDI And Growth In Emerging Markets: Does The Sectoral Distribution Matter - The Case Of Egypt

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Executive Summary

This study contributes to the on-going discussion on FDI relation with growth in emerging markets. It is based on evidence from Egypt, testing FDI's effect on growth over the period 1974-2005. The main argument of the paper is that FDI is not an aggregate phenomenon. Rather, it has different, if not contradicting, effects based on its sectoral distribution (whether it's channeled to manufacturing, agricultural or service sectors) and should not be treated as a homogenous group. The analysis uses an endogenous growth model. It extends the traditional production function through introducing FDI as a source of capital accumulation as well as a generator of knowledge.

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