Investment climate and trade margins in Egypt: which factors do matter?

in: Economics Bulletin 39 (4), 2275-2301

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In this paper, we explore the nexus between firms' exports performance and components of the investment climate in Egypt. We include a variety of factors affecting investment, such as political and institutional factors, in addition to factors related to physical infrastructure, macroeconomic policies and competition in the market. We do this for the manufacturing sector, using firm-level data from the World Bank Enterprise Survey. We also account for both the extensive and the intensive trade margins. Our results suggest that, in fact, political, macroeconomic, institutional and competition-related factors are the most important impediments that hinder the increase in the modest number of exporters and/or the quantity of exports. While political instability and corruption affect the quantity of exports, tax payments and competition from the informal sector affect the firms' decision to become exporters. Finally, access to finance affects both extensive and intensive trade margins.