THE IMPACT OF INVESTMENT ON THE GROWTH OF EGYPT’S AGRICULTURAL SECTOR

Abstract

it is believed that the declining contribution of the agricultural sector to Egypt’s GDP is due to many factors such as the nature of agriculture itself and the structure of its land holdings in addition to the modesty of public investments that are allotted to the sector. For example, 4 per cent only of national investments were devoted to the agricultural sector in the fiscal year 2014/2015. The purpose of this paper is to estimate the effect of public investment on the growth of the agricultural sector through the application of the vector autoregressive model (VAR) and the Granger causality test for the relationship between investment on one hand and growth of the agricultural economy on the other hand. The results reveal that there is a one-directional causality between investment and growth. The decomposition analysis indicates that investment strongly and positively impacts the growth of the agricultural sector. The study recommends the expansion of public investment in agricultural infrastructure in order to lower the costs of production and to attract private investment to the agricultural sector. It is recommended also that the banking system should provide loans to agricultural enterprises at low-interest rates. Low-interest loans should encourage farmers to take the risk and invest in new agricultural projects and to upgrade their old farms.