Does demographic transition matter for economic growth? Evidence from Egypt

ABSTRACT

The paper adopts an extended exogenous Solow-Swan growth model with time series framework to analyse the relationship, if any, exists between growth of working age population, savings, tertiary enrolment, trade openness and GDP per capita of Egypt during the 1971–2015 period. A multivariate cointegration analysis is developed and results reveal a potent and long run relationship exists, thus error correction model constructed to trace both the short and the long run behaviour among variables of the model. The short run dynamic shows that the lagged differential growth of working-age population to total population is positively associated with changes in GDP per capita and savings. Among our key results, growth of working age population found to be dividend and stimulating GDP per capita in both short and long run. In addition, it boosted economic growth through its dynamic interaction with gross savings. Furthermore, variance decomposition and the impulse response function show growth of working age population has a feedback effect on GDP per capita on the long run. An implication, priority should be given to population age structure, if Egypt is to reap the benefits of demographic dividend.

KEYWORDS:

• Demographic dividend
• GDP
• granger causality test
• error correction model
• Johansen cointegration
• VECM

JEL CLASSIFICATION:

• J11
• J21
• C22
• O53

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1 The lag structure chosen according to Schwarz information criteria to be two, which is the common on the annual data. The Bai and Perron (1998) structural break test used to test the presence of structural breaks and showed no breaks in the series.