The Impact of Foreign Direct Investment on Inflation and Economic Growth in Egypt

The attraction of Foreign Direct Investment (FDI) has become a critical concern for economists and policymakers. Emerging and developing countries, particularly Egypt, are engaged in intense competition to attract foreign investments, primarily due to insufficient domestic savings relative to the investment required for development. In this context, FDI serves as an alternative to external loans and grants. Moreover, the inflow of FDI significantly contributes to economic growth and development by improving infrastructure, creating employment opportunities, introducing and localizing advanced technologies, and providing essential financial resources for investment. Additionally, FDI expands the investment base in the host country, enhances the skills and expertise of the local workforce, and fosters job creation.
This study examines the complex relationship between FDI, economic growth, and inflation in Egypt, utilizing the ARDL model based on annual data from 2000 to 2023. The findings indicate a long-term relationship between FDI and GDP growth. The optimal ARDL model (4, 4, 2) was selected based on the data analysis. The results underscore the importance of FDI in driving economic expansion while emphasizing the necessity of sound macroeconomic policies to maximize its benefits. Therefore, the study recommends that policymakers prioritize the development of economic sectors with strong linkages to FDI. Targeted policies should aim to optimize the positive effects of foreign investments on domestic industries by fostering backward and forward linkages, thereby strengthening local supply chains.