How does Knowledge Spur the Productivity of Private Egyptian Firms? An Instrumental Variable Approach

This study dissects firm knowledge into two main types: Internal firm Knowledge (Knowledge workers) and External firm Knowledge (Relational Knowledge with other firms). The major goal is to investigate how each type affects the productivity of the firms. This article also examines how this effect differs among Egyptian firms in the agriculture, manufacturing, and service sectors. The authors use firm-level data in Egypt on the sectoral level. The properties of instrumental variables regression using two-stage least-squares (2SLS) estimation are adopted to overcome endogeneity and omitted variable bias in the empirical estimations. The study's findings reveal that (a) the effects of Internal and External knowledge on the firm productivity are sector-specific. (b) Knowledge-workers and relational knowledge are two times more effective for agriculture than manufacturing and service firms. (c) External knowledge plays a vital role in increasing productivity relative to internal knowledge for the manufacturing sector. (d) Finally, internal and external knowledge has the same effect on the service firms