Public debt and investment growth, evidence from Egypt

In this paper we are trying to investigate the impact of public debt accumulation on the Egyptian public investment growth to ascertain the validity of crowding out theory. The research adopts Vector Error Correction Estimation techniques to determine the terrible nature of the relationship between public debt accumulation (both internal and external debt) and public investment growth in Egypt. We are using data covering the period 1981-2015 sourced from the Central Bank of Egypt and the World Bank data base. The results reveal that external debt, debt serving and exchange rate coefficient are significant at all levels indicating their strong negative impact on the public investment growth. Additionally we find a very low speed of adjustment mechanism of just 31% in the economy’s long-run equilibrium.