Saving and Growth in Egypt

Abstract

This study illustrates the mechanisms linking national saving and economic growth, with the purpose of understanding the possibilities and limits of a saving-based growth agenda in the context of the Egyptian economy. This is done through a simple theoretical model, calibrated to fit the Egyptian economy, and simulated to explore different potential scenarios. The main conclusion is that if the Egyptian economy does not experience progress in productivity — stemming from technological innovation, improved public management, and private-sector reforms — , then a high rate of economic growth is not feasible at current rates of national saving and would require a saving effort that is highly unrealistic. For instance, financing a constant 4% growth rate of GDP per capita with no TFP improvement would require a national saving rate of around 50% in the first decade and 80% in 25 years! However, if productivity rises, sustaining and improving high rates of economic growth becomes viable. Following the previous example, a 2% growth rate of TFP would allow a 4% growth rate of GDP per capita with national saving rate in the realistic range of 20—25% of GDP.

Keywords:

• Savings
• economic growth
• Total Factor productivity
• Egypt

Additional information

Notes on contributors

Constantino Hevia

We are grateful to Minister Mahmoud Mohieldin, Farrukh Iqbal, Santiago Herrera, Inessa Love, Alan MacArthur, Tarek Moursi, Brian Pinto, Ritva Reinikka, Luis Servén, Lyn Squire, and two anonymous referees for useful insights and comments. We are indebted to Hoda Youssef and Yuki Ikeda for data collection and to Tomoko Wada for editorial assistance. The views expressed in this paper are those of the authors, and do not necessarily reflect those of the World Bank, their Boards of Directors, or the countries they represent.