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

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.

The Role of Foreign Direct Investment In The Relationship Between Global Innovation Index and Gross Domestic Product

“…Firstly, findings support the theory of endogenous growth which indicates that innovation stimulates economic growth. In addition, findings approve the neoclassical growth theory which suggests that foreign investment through multinational companies increases wealth in host nations and this situation enables the realization of growth much faster than domestic savings (Mohamed et al, 2021). The study present practical implications for governments and stakeholders.…”

“…Adak's (2015) study emphasized the impact of technological innovation on economic growth. Indeed, in the globalizing world, the differences between countries in technology and innovation explain the differences in economic growth between countries (Mohamed et al, 2021). Likewise, Maradan et al (2017) found that technological innovation is one of the most essential determinants of economic growth.…”

“…Similarly, Habibi's (2017) study showed that FDI affects economic growth. Due to the conspicuous benefits of foreign direct investment to the national economy, developing countries adopt various policies that facilitate FDI flow, such as investment incentives and facilitating foreign trade procedures (Mohamed et al, 2021). As well as its impact on GDP, foreign direct investment certainly brings innovations in business functions such as production, marketing, R&D, innovation, finance, supply chain through technology transfer (Makki and Somwaru, 2004;Jiang et al, 2021).…”

“…The endogenous growth theory postulates that innovation and technological progress are considered as major determinants of economic growth. Moreover, the neoclassical growth theory proposes that foreign investment through multinational companies increases wealth in host nations and this situation enables the realization of growth much faster than domestic savings (Mohamed et al, 2021). The remainder of this paper is structured into six sections.…”

Exploring the Impact of “Double Cycle” and Industrial Upgrading on Sustainable High-Quality Economic Development: Application of Spatial and Mediation Models

“…"Double cycle" and the synergy of industrial upgrading can realize the innovation chain as the leading factor in the "four chains" of innovation chain, supply chain, industrial chain, and value chain, and drive highquality economic development [33]. Meanwhile, industrial upgrading could strengthen green technological innovation and green development, forming a mutually reinforcing pattern of ecological protection and high-quality development through ecological protection, and promoting the improvement of ecological protection through high-quality development [34,35].…”