Growing without changing: A tale of Egypt's weak productivity growth

Abstract

AbstractDespite fast growth during 2000–2010, Egypt saw limited productivity gains from sectoral labor reallocation over the past three decades. Using a novel data set and updated measures of productivity growth induced by structural change in employment patterns across a large set of countries, we explain why Egypt failed to significantly reduce unemployment, lower poverty, or raise productivity. We use cross‐country comparisons, counterfactual scenarios, and regression analysis to demonstrate that limited openness to trade, weak export diversification, and low access to finance prevented Egypt from tapping the growth potential of a structural shift in labor towards skilled manufacturing and private services, locking Egypt instead into a “low value trap.” The paper suggests policy implications on how to overcome impediments to efficient sectoral reallocation of workers.