The Impact of Monetary Policy Tools on Investment and Its Reflection on The Egyptian Agricultural Sector Using GARCH Model

Abstract

Despite the efforts made by Egypt to activate and develop domestic investment and attract more FDI through enacting legislation, strengthening infrastructure, establishing industrial and economic investment zones, and trying to create an economic environment that attracts FDI, the economic returns of these measures are still not reflected in the economic sectors significantly. Its results were not clear through an improvement in the level of individual incomes or a decrease in the rates of poverty, inflation and unemployment, or an increase in the efficiency and productivity of the Egyptian economy represented by an increase in the rate of economic growth and the maximization of domestic product.As the improper use of monetary policy tools by the monetary authority motivated by control of the money supply to achieve economic balance through increased taxes and interest rates and an increase in the exchange rate led to a shrinkage in the volume of real domestic investment and a decline in incoming foreign investment. Which leads us to wonder whether monetary policy, with its tools and operational and intermediate objectives, has a positive stimulating effect on investment in general and agricultural investment in particular, as a major and influential sector in the national economy? Hence, the research aims to identify the effectiveness of monetary policy variables in attracting investment, and its impact on the Egyptian agricultural sector, the impact of monetary policy tools on agricultural investment. It was based on the research the use GARCH Model, in order to test the hypothesis of whether monetary policy, with its tools and operational and intermediate objectives, has a positive stimulating effect on investment in Egypt. The results showed the significance of the estimated model for all variables, as it was found that an increase in the total real domestic liquidity and real credit by about one billion pounds leads to an increase in investment by about 0.55 and 0.51 billion L.E each and that the decrease in the real interest rate by about 1% leads to an increase in investment. The investment is 2.3%. Relevant to the results, it is clear that despite the positive impact of credit on investment, this credit is not available due to the crowding out of the government sector with the private sector. Regarding the impact of these results on the agricultural sector, it was found from the estimation of the standard model that the real agricultural investment increased by 0.12 and 0.48 billion L.E. each, respectively, while the real interest rate and the inflation rate decreased by about 1%, which leads to an increase in real agricultural investment by about 0.34. 0.24 Billion L.E each, respectively. The research recommends the necessity of following an appropriate monetary policy to stimulate and grow domestic investment and attract foreign investment by reducing interest rates, providing credit, and not competing with the private sector in obtaining credit, and reducing inflation. With a focus on the productive se...