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Abstract
In this paper, the impact of alternative development strategies on growth and
poverty is assessed in an economywide framework, using Egypt as a case study. The
analysis is guided by the following question: By pursuing a development strategy
different from the one actually pursued since the late 1970s, could Egypt’s government
significantly have improved the status of its poor? To address this question, a dynamic,
recursive, Computable General Equilibrium (CGE) model is used to simulate Egypt’s
economy for the period 1979-1997. The model is built around a Social Accounting
Matrix (SAM) for 1979. The base scenario incorporates Egypt’s evolving policy regime
and changes in Egypt’s external environment, including a gradual transition toward an
economy with less government involvement. The other scenarios differ in terms of trade
policies, domestic incentives, asset distribution, and the pattern of domestic productivity
growth.
The results indicate that pro-poor redistribution of land and human capital assets
could have been a particularly effective tool had Egypt prioritized more strongly to
improve the welfare of the poor and reduce inequalities. Such policies could have been
implemented without any noticeable negative impact on growth or aggregate welfare.
The results also suggest that, for Egypt, there was no contradiction between more rapid
growth, largely a function of more rapid productivity growth, and improved welfare for
the poor. The impact of more rapid reduction of price distortions, induced by taxes and
subsidies, is small but positive in terms of aggregate growth. The effects of introducing
biases in favor of specific sectors may be stronger and depend on the specific context,
including the nature of economic linkages and, with regard to the policies analyzed in this
paper, on the ease with which it is possible to raise productivity growth, reduce
transactions costs, and get improved access to export markets. The present analysis
confirms the finding of earlier analyses that, compared to pro-manufacturing policies,
pro-agricultural policies have a more positive impact on household welfare in general and
the poor in particular. There is a significant synergy between a pro-agricultural shift in
productivity growth, improved market access for agricultural exports, and reduced
transactions costs in foreign trade.