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In the last two decades, Egypt has experienced two waves of ambitious economic reforms. During the same period, the economy has boomed and the stock market has skyrocketed. In this article, we develop a simple endogenous growth model and estimate multivariate vector autoregressive models in order to investigate the linkages between economic reforms, stock market and economic growth in Egypt. The channels through which the stock market may affect the Egyptian economic activity are also examined. Our results show unidirectional causality running from stock market development to economic growth through the level of investment. Furthermore, there is evidence that the reforms launched by the Egyptian government impact directly on the liquidity of the stock market, which in turn increases the incentives for investment and boosts further economic growth.
