Improved Productivity Is Needed for High Economic Growth in Egypt

High economic growth is not feasible with Egypt’s high national savings rates, unless the national economy improves productivity based on technological innovation, better public management and private-sector reforms, according to a new working paper by Constantino Hevia and Norman Loayza.

The authors reach this conclusion using a theoretical model calibrated to the Egyptian economy. For instance, without higher productivity, it would require an unrealistically high national savings rate of about 50 percent in the first decade -- and 80 percent in 25 years -- to finance a per capita growth rate of 4 percent of gross domestic product. But, if productivity goes up, it becomes viable to sustain high economic growth. Following the previous example, if total factor productivity goes up at the rate of 2 percent a year, it would allow a per capita growth rate of 4 percent of GDP, with the national savings rate in the realistic range of 20-25 percent of GDP. After all, Egypt’s savings rate has already been fluctuating around 20 percent of GDP since the 1990s.