Are Technological Innovation and Foreign Direct Investment a Way to Boost Economic Growth? An Egyptian Case Study Using the Autoregressive Distributed Lag (ARDL) Model

Maha Mohamed Alsebai Mohamed,Pingfeng Liu,Guihua Nie

doi:10.3390/su13063265

Maha Mohamed Alsebai Mohamed, Pingfeng Liu + Show 1 more

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https://doi.org/10.3390/su13063265

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Journal: Sustainability	Publication Date: Mar 16, 2021
Citations: 21	License type: CC BY 4.0

Affiliation: Wuhan University of Technology, Benha University

Abstract

Both technological innovation and foreign direct investment have received widespread attention in the literature on their role in promoting economic growth. Therefore, this study aims to test the relationship between foreign direct investment, technological innovation, and economic growth of the Egyptian economy during the period between 1990–2019 using the autoregressive distributed lag model simultaneous integration test. Our findings show of the ARDL (Autoregressive Distributed Lag) model estimation a joint complementary relationship between the rate of growth of per capita gross domestic product (GDP) in US dollars and the independent variables in the model in the long and short term, which are statistically significant results. We found a positive significant relationship between the variables of incoming foreign direct investment and share of total capital formation in economic growth. Therefore, in the long term, the rate of inflation and the innovation index had a negative impact in the long term and the speed of adjustment towards equilibrium was very large, as it was estimated at 1.5 years (1/0.651). Furthermore, the study also provides valuable lessons and a strategic vision for the Egyptian government, which aspires to advance technology and attract more foreign direct investment.

Highlights

IntroductionInnovation creates opportunities in developed countries as well as in less developed countries [1,2]
In order to ascertain the conditions for applying the ARDL test represented in the degree of integration of time series for the study variables, so that the degree of integration of the variables must be either (0) I or (1) I, or both, we tested the stability of the study variables
Since all the variables of the study are non-static at the same degree, there is a possibility of a common complementarity between the variables in the study model that results in a long-term equilibrium relationship, and to detect the existence of this integration, the autoregressive method for distributed slowdown periods was used through the border test method (ARDL) which was proposed by Pesaran et al (2001), where cointegration was used when each of the variables was a dependent variable, as part of the unconstrained error correction model

Summary

Introduction

Innovation creates opportunities in developed countries as well as in less developed countries [1,2]. The creation of innovative technologies and ideas created by people is fundamental to advancement in all sectors and aspects of human life [3]. Human resources are responsible for innovation, and it affects it greatly in countries with limited natural resources, or rich countries. The important thing here is how to manage and develop human capital. Despite most people believing that natural resources are the main source of income for any country, there are many countries that do not possess many natural resources but have high economic growth and economic development in all fields; this is due to the interest in human capital in terms of education and training [4]. Human capital refers to the knowledge and skills possessed by manpower that provides potential or actual economic value [5]

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