Trade Openness and Economic Growth: Empirical Evidence from Egypt

This paper investigates the impact of trade openness on economic growth in Egypt. It adopts an Autoregressive Distributed Lag (ARDL) model to identify the short run and long run effects of trade openness on economic growth in Egypt during 1982-2020, while using the composite trade share (CTS) introduced by Squalli and Wilson (2011) as a measure of trade openness. The results show that trade openness contributes positively to economic growth in Egypt both in the short run and long run. Long-run results imply that employment, physical capital, and financial development also affect economic growth positively, whereas government size is negatively related to economic growth. Moreover, short-run results are largely consistent with those of the long run, except for physical capital and government size. Accordingly, there some policy recommendations that are related to trade policy such as reducing average tariff rate in some activities, as well as reducing tariff-induced export bias and tariff dispersion. In addition, some complementary reforms are required to increase the benefits of Egypt from trade openness including adopting a flexible exchange rate regime, moving towards increasing the contribution of high-value added and high-tech exports in total exports, ensuring the compliance of Egyptian exports with quality and safety standards, increasing the benefits from bilateral and regional trade agreements, improving technical and vocational education and training, as well as providing trade-enhancing laws and procedures.