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Dissertation Defense |
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Candidate: Mohamed Gaber Hassan Elsayed Degree of: Doctor of PhilosophyDepartment: Economics Title: Investment and Capital Flows Under Uncertainty and Capital Market Imperfection in Oil Producing Countries Date: Wednesday, August 4, 2004 3:00-5:00 p.m. In the second chapter we construct measures of uncertainty facing 13 oil-producing countries from 1981 to 2003 utilizing component GARCH models. My contribution in this chapter is twofold. First is to measure the transitory and permanent components of uncertainty for broad macroeconomic variables, inter alia, uncertainty of credit availability and oil price uncertainty. Second, is to assess the impact of different shocks to oil price uncertainty, in particular, the impact of Kuwait invasion in 1990, September 11, 2001, and Iraqi war in 2003. We used the constructed uncertainty measures in estimating the investment model in the next chapter. In the third chapter a model of four simultaneous equations is developed to capture dynamic interactions. My work is different from previous empirical studies in two things. First, not only do we consider the impact of uncertainty and credit market imperfection on investment, but also we examine the source of uncertainty by decomposing it into transitory and permanent components. Second, I employ GMM-3SLS technique which has never been used before to address this issue. This technique accounts for a potential endogeneity of explanatory variables, controls for country-specific fixed effects, and enables the use of different instruments for each equation in the model. Our findings show that bi-direction interactions between domestic investment, foreign investment, and foreign bank loans exist. However FDI induces domestic investment more than domestic investment does. FBL is the second most important component in capital flows in stimulating domestic investment but its impact is much less than FDI. Also we find that the negative effect of credit uncertainty on investment dampens the positive effect of financial development and hence deter investment. The fourth chapter conducts out-of-sample simulation for the Egyptian economy over the 2004- 2010 horizon. Based on the results of chapter 3, an econometric model is employed to generate a set of forecasts. First, we discuss the theoretical aspects of different scenarios used in the model’s simulation. Specifically, the macroeconomic consequences and policy issues the capital inflows cause. Second, we examine the effects of different possible scenarios on the path of domestic investment and each type of capital flow. The results reveal that a contractionary fiscal policy implemented by cutting government expenditure is more effective than increasing taxes in response to the “overheating” caused by the capital inflow. Also, the sterilization policy is not recommended. Reducing uncertainty in all variables has a favorable effect in increasing domestic investment and FDI.
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