The Impact Of Alternative Development Strategies On Growth And Distribution: Simulations With A Dynamic Model For Egypt

Addressing longer-term issues of economic development in Egypt, the paper employs a dynamically recursive computable general equilibrium (CGE) model to assess the outcomes associated with two types of development approaches over the period 1998-2012. One is a targeted sector development approach, and the second is a more broad-based development approach. Under the first development approach technological advancement is separately targeted to three sectors: agriculture, food processing, and textiles. Each sectoral choice is intended to represent alternative development strategies which we label (i) agricultural-demand- led industrialization (ADLI); (ii) food-processing-based (FOOD); and (iii) textile-based industrialization (TEXTILE). Under the second approach a more broad based development strategy is adopted where the same technological advancement is equally distributed among the three sectors and takes place simultaneously. We refer to it as (BAL) – a sectorally balanced industrialization strategy. Results focusing on the pattern of growth and measures of income inequality – the Theil and Atkinson measures – from the four strategies are compared to a benchmark growth path, which we label (BASE). The analysis was carried out under two cases; one where the ease of transforming output between domestic markets and export markets is low for all production sectors including agriculture, and another where we assume perfect transformability for agriculture. In the first case, the TEXTILE strategy is pro-growth and more egalitarian, while ADLI generates a combination of more rapid growth and increasing inequality. For the second case, ADLI strategy dominates in terms of rapid growth and reduced inequality. The results indicate that, when agricultural exports remain relatively low, promoting the Egyptian textile sector is a win-win scenario in terms of rapid growth and equity. In addition, adopting policies that maintain agricultural prices leads to rapid growth and a general improvement of the distribution of income among households. A crucial policy objectives for achieving rapid and egalitarian growth for the Egyptian economy is the ability to secure improved access to international textile markets and the successful expansion of agricultural exports.