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tion in Egypt - Historical Development and Implications for Economic Policy.”

As obvious from the table above, it seems that some of the industries' shares have rapidly expanded like: Food beverages and tobacco, non-metallic mineral products, basic metals, and metal products. While there are other industries that remained stagnant if not decreased slightly like: Paper, printing and publishing; chemicals, petroleum, and plastic products. The only industry that has significantly slowed-down is the textiles industry. Not only was this slow-down in production, but also in exports whether in quantity or in value.

4.3 Literature Review

FDI is considered to play an important role in many countries, especially in the developing economies, as multinational firms decide to start international operations in a foreign country, they bring with them proprietary and firm-specific knowledge and technology which allow them to compete successfully with the domestic firms. Foreign firms may give rise to different types of externalities in the host country, which in turn can generate spillovers for the domestic firms. Productivity spillovers can occur both in the sector in which foreign firms are present (horizontal effects) and among related companies such as suppliers (vertical effects). The effects of FDI can be classified into three broad groups.

Product market effects are due to FDI causing firms to change the quantities of goods sold. For instance, horizontal FDI, which is likely to replace imports by local production in the host country, may crowd out the local competitors who were previously producing close substitutes, meaning that the local firms may be forced to reduce their sales or might be forced out altogether.

Factor market effects of FDI alter the composition of the labor markets of the host and home countries. This occurs because FDI puts an upward pressure on wages of, especially, unskilled workers in the FDI-receiving countries, accompanied by a downward pressure on wages of the unskilled workers in the FDI-sending countries (Barbra Navaretti and Venables, 2004). FDI may also help to upgrade the skills of the local workers by providing on-the-job training.

Spillover effects, there are several channels through which knowledge and technology are spilled over from the foreign-owned to domestically-owned firms in host economies. Kokko (1992), Blomstr?m and Kokko (1998), Blomstr?m et al. (2000), and Saggi (2002) show that multinational firms may provide allocative efficiency in the host country by entering into industries where entry barriers for new firms are high (Caves, 1974). The presence of MNCs may reduce monopolistic distortions, and raise productivity by improving resource allocations in the host economy. In addition, foreign subsidiaries induce higher technical efficiency when upward competitive pressures or demonstration effects by the presence of foreign firms force domestically owned firms to make a better use of the existing resources. Another channel of technology transfer may be through labor turnover from foreign to domestic firms. When employees previously trained by foreign firms change employment and move to domestic firms, they bring with them specific technological and managerial knowledge and expertise.

On the other hand, the presence of multinational firms can, in the short run, also reduce the productivity of the d