Governance Matters and Economic Growth: Beyond the Egyptian Revolution

Abstract

Following the Egyptian revolution in January 2011, the need for a new development approach has become essential. That is development with a human face. This study aims to contribute to the discussion on sustainable economic growth in Egypt by examining the interdependence of inclusive governance, economic and social inclusion, through empirically assessing the relationship between governance indicators and economic growth in Egypt. The study applied a vector error correction model (VECM) to assess the causal relationship between the two key variables, using Worldwide Governance Indicators (WGI) from the World Bank and economic indicators from Economic Intelligent Unit (EIU) database over the period 1996-2016. The results show that the Egyptian economy suffered during the study period from a significant decrease in the level of governance. The analysis indicated that most of the governance indicators have a causal relationship with economic growth except corruption control, while economic growth has a positive effect and contributes to the development of political stability and regulatory quality. The paper concludes that appropriate initiatives and efficient governance could play a significant role in influencing economic growth in Egypt. This is consistent with previous studies on the impact of institutions on economic growth and development. However, these results need further investigation to determine additional key variables that influence the growth of GDP in Egypt.