A Causality Study between both Imports and Taxes and the Informal Manufacturing Entrepreneurs in Egypt (1980-2014)

Abstract:
The existence and increasing of the informal entrepreneurs in the manufacturing sector is one of the most important issues in the inclusive economic development in Egypt and in the developing countries. The study aims to test the bi-directional causality relationship between the informal manufacturing entrepreneurs and both taxes and imports. The hypothesis is tested for the time period (1980-2014) in Egypt. The methodology of the study depends on the deductive approach. The consumption of electricity is used to calculate the size of the informal manufacturing entrepreneurs as a proxy under two assumptions. The unit root test is applied using (ADF) and the Johansen co integration estimates indicated to use the VECM.  The results indicate to the existence of significant long run bi- directional causality relationship between the variables, but in the short run the only significant bi-directional causality relationship exists between informal manufacturing entrepreneurs and taxes. The conclusion of the study is that the policy maker should reform the taxes system, manage imports and support the CBE initiative for financing the manufacturing small enterprises to formalize the informal manufacturing entrepreneurs.