Does Public Investment Crowd Out Private Investment in Egypt? A sectoral-level Analysis

Abstract

This paper examines the long run cointegrating relationship between public and private investment in Egypt at both the gross and sectoral levels, taking into account other relevant factors such as the ratio of credit to the public sector, lending interest rate, and output. To address this question, the paper specifies two models using quarterly data spanning the last two decades. The first model examines whether gross public investment crowds out gross private investment. The second model features fourteen regressions that capture the impact of public investment on private investment in different economic sectors. While the paper finds evidence in favor of the crowding-out effect at the gross level, sectoral-level analysis shows evidence of discrepancies among different sectors. That is, public investment tends to crowd in private investment in sectors such as agriculture, construction, manufacturing, natural gas, and real estate. Yet, public investment tends to crowd out private investment in other sectors such as trade, and information and communications. The findings of this paper provide useful insights to policymakers in prioritizing public investment in sectors that complement, rather than compete with, private investment.