DP9363 Did Muhammad Ali Foster Industrialization in Early 19th Century Egypt?

Author(s): Laura Panza , Jeffrey G Williamson

Publication Date: February 2013

Keyword(s): Egypt , 19th century , de-industrialization , trade , industrial policy

JEL(s): F1 , N7 , O2

Programme Areas: Economic History

Link to this Page: www.cepr.org/pubs/dps/DP9363.asp

Muhammad Ali, who ruled Egypt between 1805 and 1849, intervened in Egyptian markets in an attempt to foster industrialization, especially between 1812 and 1840. Like a modern marketing board, the state purchased agricultural commodities (cotton, wheat) at low prices and sold them on world markets at much higher prices, a policy equivalent to an export tax. Ali also replaced tax farming with his own land taxes. The revenues so derived were used in part to finance manufacturing investment and to build irrigation canals. In addition, Ali supplied flax and cotton at those cheap purchase prices to domestic textile manufacturing, thus subsidizing the industry. He also used non-tariff barriers to exclude foreign competition from domestic markets. Were Ali’s state-led policies successful in fostering industry? The answer is no easier to extract from this phase of Egyptian history than from other poor countries at that time since Egypt faced the same terms of trade boom typical of most poor commodity exporters – Egyptian export commodity prices soared relative to manufactured imports, forces that were causing de-industrialization everywhere else in the poor periphery. Ali picked a very difficult time to pursue his agenda, but we show that his policies were successful.