Education and international openness in Egypt Silvia Domeneghetti Supervisor: prof. R. Fiorentini

2 Education and international openness in Egypt Subject: Did the schooling programme contribute to increase the country’s human capital? Did it affect economic growth? Did the human capital attract new foreign investiments in Egypt in 1990s? International openness also means trade: a first analysis of the effects of the trade agreement with the EU. Contribution: My research deals with open questions and applies them to a specific situation. Egypt and the neighbouring countries experienced deep reforms and performed good economic growth. In spite of this, it received little attention in the literature.

3 Education and international openness in Egypt Three papers: 1. The openness to international trade, 1990s 2. The international investments, 1990s 3. The schooling progamme, 1950s

4 The openness to international trade in Egypt The literature: The relation between free trade and growth is not clearly stated (sign, direction) Geography, population, income, institutions may affect the results. Different ways to measure openness, new indicators: none is exhaustive. Do open economies converge? The effects of liberalization on the population’s welfare

5 The openness to international trade in Egypt The Sixties and the Seventies: Egypt is closed to the world, self- sufficiency, import-substitution policy The Nineties : deep economic reforms, stabilization of GDP growth,… …and international openness, with a general tariff reduction and a bilateral agreement with the EU (in force since June 2004)

6 The openness to international trade in Egypt The bilateral agreement Egypt – EU, Gradual tariff reduction within 12 years, on the egyptian side. Purpose of the research: To assess whether there is an increase in the commercial flows toward the EU, as a result of the first tariff reductions. Possible effects: on small plants, unemployment, new factories (example, semi-finished goods) Comparison with the effects of the agreement with Morocco and Tunisia, who signed with the EU in 1995.

7 The international investments in Egypt The literature Different effects coming from financial flows and true investments (FDI) FDI support technological progress in the developing countries Economic and political stability, property rights, quality of the workforce … can make a country attractive for FDI

8 The international investments in Egypt 1990s: important economic reforms in Egypt: Privatizations (also in the financial and banking sector) Control of inflation (and of the budget deficit) The Central Bank in charge of the exchange rate and of the interest rates A new law for the capital markets (1992) Accountancy rules (IAS) and supervision … the country reached the GDP growth target of 7%. The bilateral agreement Egypt – EU, 2004 also includes investments.

9 The international investments in Egypt Did new FDI flow in the country thanks to the economic reforms? Did the schooling programme create a minimum threshold of human capital, such that FDIs affects growth positively? Methodology and expected results: Endogenous growth model, to relate FDI and growth. FDI as new kinds of capital in the production function. Expected results: positive relation FDI-GDP growth, education not significant. FDI attracted by facilitations (tax, administrative) in the so-called “incentive-based zones.” Positive effects on individual income and employment.

10 The schooling programme in Egypt The literature: Education and income – education and growth: a paradox The microeconomics: more education leads to higher private incomes (see Duflo for Indonesia). The macroeconomics: relation education – GDP not significant or with the wrong sign. Three possible reasons(see Pritchett) Invididually (but not socially) remunerative jobs Time mismatching between supply and demand for qualified workforce. Low quality of education: the human capital does not grow.

11 The schooling programme in Egypt The Fifties: schooling programme, for a universal and free education. The Sixties: strong incentives towards secondary and tertiary level of education – graduates are now the bulk of the new entrants in the job markets. The reform brought benefits from the social point of view: are these measurable on the economic side? Did a higher level of education affected the country’s attractiveness for FDI?

12 The schooling programme in Egypt Methodology: Endogenous growth model (and eventually comparison with a TFP model) to assess the effects of education on growth – and comparison with other MENA countries who did not run a schooling programme (If data are available) to assess the effects on individual income, using a panel at governorate level