Keynesian Multiplier: Does it Matter to Egyptian Economy?

Abstract

The study aims at investigating the impact of Keynesian multiplier on the four-sector open economy like Egyptian economy and testing the significance of aggregate demand components on Gross domestic product (GDP) over the period (1980-2017), the study adopts a descriptive analytical approach and econometrics methodology. The main findings that the theoretical literature is more likely meet the evidence for developed countries and unlikely for the developing countries. Unit Root tests show that variables are integrated of order one I(1), and they have long term equilibrium relationship. The four-sector multiplier value varied from year to year depending on the value of MPW. The mean value of the multiplier equals to 0.938 times. The significant of the model R2 indicates that 89.1 % of GDP explained by the independent variables over the study period. The lag consumption, investment, government expenditure and imports are significant at 5% level, while the lag exports is insignificant due to the international demand pattern fluctuations and the most of domestic production directed to supply at local market. For policy recommendations, the policy makers should decrease the leakages from income circular flow and increase the share of investment in GDP by suggesting investment future plan for needed investment projects in addition to applying dampening policy that decrease imports of both unnecessary consumption and luxury goods.