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  • 1. STRUCTURAL CHANGE IN EGYPT AND ITS IMPACT ON EMPLOYMENT AND PRODUCTIVITY GROWTHDURING THE PERIOD 2001-2008 Alia El-Mahdi Professor of Economics/ Cairo University Abdel-Hameed Nawar Assistant Professor of Economics/ Cairo University

2. Outline of the Paper Introduction Literature Review The Methodology The Main Findings Conclusion 3. 1-Introduction Historical points of Structural Change in Egyptin 1957 and in 1974 The first phase of Structural Reform 1991-1997. The second phase of Structural Reform 2004-2010. 4. 2-Literature Review W.A. Lewis : the dualistic model ( modern and traditional sectors) assumesthe productivity growth of the economy is only dependent upon the growthof the modern sector. Madison (1952) analyzes the contribution which productivity increaseshave made to the remarkably rapid rate of growth of the Canadianeconomy over the 1931-49 period. Real GNP rose at a compound rate of4.7% p.a. in the period 1931-49. The greater part of this increase can beattributed to a rise in labor productivity. Timmer and Szirmai (2000) examined the role of structural change inexplaining aggregate productivity growth in the manufacturing sector offour Asian countries: India, Indonesia, South Korea and Taiwan over theperiod 19631993. They apply the sectoral decomposition to measure theimpact of shifts in both labor and capital inputs. They examine thestructural bonus hypothesis, which states that during industrialdevelopment, factor inputs shift to more productive branches. 5. World Bank (2008) study of labor productivity based on three sectors(Agriculture/ Industry/ Services) in Thailand found that sharp falloff ofproductivity growth took place within industry and services. Labor reallocationcontinued to be a strong contributor to the growth in aggregate labor productivityafter the financial crisis.. With a lower overall growth rate after 1999, thereallocation effects accounted for 60 percent of the total labor productivity growth.World Bank (2010) study on Belarus conducted structural decomposition of laborproductivity growth in the Belarus economy, 1996-2008. The data covered valueadded and employment in 27 sectors, including 16 large economic sectors and 11industrial sub-sectors. Estimates of the between productivity effect from labor shiftto sectors with higher growth in productivity and to sectors with higherproductivity levels compared to productivity growth within the sector. Alam et al (2008) conducted a pioneering work on labor productivity growth for 28countries of Eastern Europe and the Former Soviet Union and Turkey. Over 19992005, the countries have enjoyed substantial productivity gains from thereallocation of labor and capital to more productive sectors and enterprises, fromthe entry of new firms and the exit of obsolete firms, and from the more efficientuse of resources 6. McMillan and Rodrik (2011) have documented the laborproductivity gaps, and emphasized that labor flows fromlow-productivity activities to high-productivity activities arekey drivers of growth and development. Their results for 38countries from OECD, Africa, Asia and Latin America withdata in 2000 PPP U.S. dollars disaggregated into 9 economicsectors since 1990 show that structural change has beengrowth-reducing in both Africa and Latin America, with themost striking changes taking place in Latin America. Globalization, however, has resulted in highly unevenoutcomes shown by their empirical results as it did not alterthe underlying reality constrained by policy choices:structural change does depend not only on whatshappening within industries, but also on the reallocationof resources across sectors. 7. 3-Methodology Typically, the concept of productivity is generally defined at theaggregate, sector, industry or plant levels- as an average output-inputratio: 8. Aggregate labor productivity growthdecompositionWithin effectStatic between effectDynamic between effect8 9. Data Our data comes from a single national source, the Ministry of Planning(MoP), which makes the value-added tables of GDP at factor cost availableonline. Both real and nominal value-added are available but at differentbase-year constant prices. The only exception was the last two periods, (FY2002-FY2007) and (FY2007-FY2009), where the value-added are available in 2001/2002 prices and2006/2007 Prices are available for the year FY2007 and thus we could linktogether the two time-series on the same base-year (2001/2002) prices. Sectoral classification of value-added and employment has been constantlychanging that makes studying a longer period impossible without high levelof aggregation (e.g. only three sector classification agriculture,manufacturing and service). Thus, we could only handle the sectoralclassification problems consistently over the last two periods, (FY2002-FY2007) and (FY2007-FY2008). 10. Economic Activities Agriculture, Woodlands & hunting Extractions Manufacturing Industries Public Utilities ((Electricity, Gas, and Water) Construction & Buildings Transportation, Storage & Communication including Suez Canal Wholesale and Retail Trade, Hotels and Restaurants Finance, Insurance, Real Estate and Business Services* Community, Social, Personal and Government Services ** 11. 4-Main FindingsThe Egyptian economy is a dual economy. Firstly, on the labor productivity growth rates, data point out that theyfluctuated over the period in question and their average growth rate didnot exceed 2.4% between the first year 2001/2002 and the last year2007/2008. The fastest rising economic activities were the followingsectors: Transportation and Storage ( including Suez Canal),Communication; Construction and Buildings; Public Utilities; andWholesale/Retail Trade Hotels and Restaurants respectively. Secondly, as to the distribution of labor between the different economicactivities, data reveal marginal movements across activities, thoughsome activities were more attractive to employment such asMining/ExtractionWholesale/Retail trade, Restaurants/Hotels,Manufacturing,andTransportation/Storage/Communicationrespectively. 12. 300 Fig 1 (b) Mining / Extraction250.23250200218.02150100 92.04 500 2001/2002 2002/2003 2003/20042004/20052005/20062006/20072007/2008Public Private Total160147.35 Fig 1 (c) Manufacturing Industries140120 128.70100806040 56.11200 2001/2002 2002/20032003/20042004/20052005/20062006/2007 2007/2008Public Private Total 13. Thirdly, the decomposition results reveal several important features of change. In this respect we will take into account a) the total decomposition values in the nine economic activities once by comparing the results according to the economic sector (private and public); and b) the decomposition values of the nine economic activities by distinguishing the "between" and the "within" sources of change. A- The decomposition results classified according to the economic activityand the sector ( public and private):Fig 2 (c) Manufacturing Industries 0.1500.135 0.1000.079 0.050 0.000-0.050-0.052-0.100 200220032004 2005 2006 2007PublicPrivateTotal 14. Fig 2 (d) Public Utilities ((Electricity, Gas, and Water)0.0250.020 0.0190.0150.0100.005 0.0060.000 0.000 -0.005 2002 2003200420052006 2007 PublicPrivate Total Fig 2 (g) Wholesale and Retail Trade, Hotels and Restaurants0.1200.100 0.0970.0800.0670.0600.0400.0200.000 -0.002-0.020 2002200320042005 2006 2007Public PrivateTotal 15. All previous figures depict the developments in total laborproductivity in the public and private sectors of the nineeconomic activities during the period in question. The apparent slow growth trend is reversed by the end of2005, as productivities start to show significantimprovements in all economic activities. The calculated overall total labor productivity values alsoindicate that the productivitys growth was primarily led bythe private sector companies and activities. This result isvisible in all economic activities with limited exceptions. 16. B- The decomposition results classified according to the economicactivity and the sources of productivity growth: The decomposition of LP growth rates into "between" and "within"factors, the following graphs present the main results: The movement of employment from low to high productivityactivities the "between" effects seem to play a dominant role indetermining the overall changes in LP in almost all economicactivities. .If (2007/2008) is excluded, we can notice that factors related toproductivity changes "within" several economic activities played adistinct role in inducing LP changes. Activities such as agriculture, construction, transportation andcommunication, public utilities, and community and social servicesshow that factors such as the usage of advanced technology,increasing the capital intensity, raising skills and efficiency of theworkers mattered significantly in increasing productivity growth rateswithin those activities 17. Fig 4 (e) Construction & Buildings 0.040 0.030 0.020 0.010 0.000 -0.010 2002/2003 2003/20042004/20052005/20062006/2007 2007/2008WithinBetween Total0.0700.0600.0500.0400.030 Within0.0200.010Betwee0.000n-0.0102002/2003 2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 Total Fig 4 (g) Wholesale and Retail Trade, Hotels and Restaurants 18. C. Unconditional and Conditional Labor Productivity The Unconditional LP In an attempt to monitor the changes that took place in both theaverage labor productivity and the share of each economic activityin total employment over three points in time, 2002, 2004, and2008. It was difficult to trace drastic changes in the relativeimportance of the economic activities through the three points intime. Thus, we took the unconditional averages of both the laborproductivity (labor productivity was measured on the vertical axison a log scale) and the share in total employment (as representedon the horizontal axis) of each economic activity over the wholeperiod to identify the positio