Abstract
This paper presents an empirical model of private investment that takes into account certain features of a developing economy such as the oligopolistic structure of markets, putty-clay technology, the inelastic supply of non-traded capital goods and financial repression. The model is tested on Egyptian data using error correction and cointegration. The results for Egypt indicate that at the macroeconomic level, private investment depends on mark ups, internal financing, demand and the cost of investment goods defined, not as the interest rate, but as the outcome of the interaction of supply and demand in the market for capital goods. The effects of government policy on private investment are mixed with some evidence of crowding out in credit markets and of crowding in as a result of government investment: in infrastructure.
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