Sources of firm-level heterogeneity in labour productivity in Egypt’s manufacturing sector

Egypt’s ranking in the World Competitiveness Report has been deteriorating. While boosting competitiveness requires reforms on several important fronts such as the improvement of infrastructure, reform of institutions, etc., raising Egypt’s low labour productivity is perhaps the most pressing reform. This is because low labour productivity is eroding the country’s comparative advantage in low wages vis-à-vis competitors like China. This paper identifies the correlates of labour productivity in Egypt’s manufacturing sector. By dichotomising firms into low- and high-productivity regimes, we find that sources of heterogeneity in labour productivity are capital intensity, size, manager quality, ratio of female labour to total labour, formality, age, average wage and sectoral average wage. This suggests that factors underlying low labour productivity are internal to the firm. On the other hand, we find that firms in each regime respond differently to various determinants of labour productivity. This must be taken into consideration when designing policies to increase productivity.