Financial development, structure, and economic growth: the case of Egypt, 1974-2002

The paper studies Egypt's financial structure and its relation to total factor productivity (TFP) during the 1974-2002 period. It first highlights Egypt's economic performance; and then focuses on the main features of its financial sector: the banking system and the securities market. The effect of financial development on TFP is then modeled by interacting bank - and market - based financial indicators with two enabling factors, per capita income and private net resource flows. The results show that bank-based indicators have a negative effect on TFP unless they are associated with a threshold level of per capita income; whereas the effect of market-based indicators is positively reinforced by private net resource flows. The paper stresses that widening the financial sector to include the securities market has benefited TFP and growth in Egypt, but more reforms is needed towards that end.