Internal and External Economies in Egyptian Manufacturing, 1970-1997

Testing for the existence of internal and external economies in Egyptian manufacturing industries can help defining an active targeted industrial policy promoting long-run growth. The Caballero and Lyons (1989) methodology has been used to disentangle external from internal economies in a production function at the two-digit level. Our findings suggest that on average in both public and private manufacturing sectors, the returns to scale are constant and that the externalities are non-existent. But some industries should deserve special attention, generating positive externalities: Chemicals, Mineral and Engineering industries in the public sector; Food and Textile industries in the private sector.