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easing foreign presence, while firms with higher gaps seem to suffer reductions in productivity. By extending their analysis of the role of absorptive capacity Girma and G?rg (2002) allow for different effects of FDI on establishments located at different quantiles of the productivity distribution by using conditional quantile regression techniques. The paper find support for the hypothesis that only firms with some level of absorptive capacity benefit from productivity spillovers. In a similar vein, Barrios and Strobl (2002) find little evidence for any aggregate horizontal spillovers from MNEs in their firm level panel for Spanish manufacturing. They found evidence for positive spillovers from foreign presence to domestic exporters but not to non-exporters, which they interpret as evidence that absorptive capacity matters. They argue that exporting firms are more exposed to international competition are likely, therefore, to use more advanced technologies and hence more likely to benefit from positive spillovers than non-exporters. Kinoshita (2001) also finds no evidence on average in firm level panel data for the Czech Republic. However, there are positive spillovers from R&D for local firms. This was interpreted as evidence that absorptive capacity is important. Damijan et al (2001) has also interpreted absorptive capacity in terms of local firms’ R&D activities. In their firm level panel for a number of Central and Eastern European transition economies they fail to detect evidence for productivity spillovers affecting the average firm. Considering absorptive capacity, the interaction the foreign presence variable with a firm’s R&D expenditure yields some differences in results. For the Czech Republic and Poland, there is now evidence for negative spillovers but positive spillovers for Romania and no evidence for all other countries. In this paper, we take the difference between G5 (Japan, United States, France, Germany, United Kingdom) GDP and Egypt’s GDP to Egypt’s GDP as a measure to technology gap.

4.4.2 Data Description and Sources

The empirical analysis in this study is based on the manufacturing sector in Egypt. The data were obtained from the Central Agency for Public Mobilization and statistics (CAPMAS), which collects and maintains a computerized sector-level database covering manufacturing industry in Egypt. Our dataset is a balanced panel consisting of 9 manufacturing sub sectors (Food products, beverages and tobacco; Textiles and textile products; Wood and wood products; Pulp, paper and paper products, publishing and printing; Chemicals, chemical products and man-made fibres; Non-metallic mineral products; Basic metals and fabricated metal products; Machinery and equipment; Others) over a period of 31 years from 1975 to 2005 with a total of 279 observations. The data contain information on gross domestic product in current and constant (1990) prices, work force, capital, and imports. The data for foreign direct investment was collected from the General Authority for Investment (GAFI). While the data for technology gap was collected from the Global Market Information Database. Table (4.4) presents definitions and summary statistics of the key variables used in the empirical estimations.