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Abstract
The overarching objective of this report is to use a multi-level analysis approach
to assess the effects of various government spending on growth and poverty reduction
and their trade-offs between these two goals and to offer future policy options to achieve
the Millennium Development Goals (MDGs). The study involves analyses and
simulations at the different levels: household, sector/region as well as macro levels.
Different analytical tools are used at the different levels. Analyses at the different levels
are initially executed independently, but final synergy is drawn through an integrated
macro-micro framework. This new approach has enabled us to gain new knowledge as
well as new policy insights.
The study confirmed previous studies that universal subsidy is inefficient and
usually achieves its intended goal at a much higher cost. Targeted approach is much
preferred. If a well-targeted program is designed, more poverty reduction and much
better income distribution can be obtained. Moreover, saved government resources can
be used for productive investments in human capitals, infrastructure, and agricultural
technology that would have long terms impact on growth and poverty reduction. Among
all types of targeted programs, direct income transfer deserves a special attention. Aged,
women, children and rural population are also special groups for targeting as they
account for the majority of poor.
In order to achieve the maximized growth and poverty reduction impact, public
investment needs to be better prioritized. Investing in human capital and infrastructure,
particularly in rural Egypt, offers the highest return in terms of both growth and poverty
reduction. This is conformed by all levels of analyses: household, regional and macro
levels: In terms of regional priorities, investment in Upper Egypt would lead to largest
poverty reduction as poor are increasingly concentrated in the region.
Investing in agriculture is potentially pro-poor and can contribute to long term
national food security and economic growth. But the current trade policy that isolates
domestic market from the international one leads to lower returns to these investments, particularly in terms of rural income and rural poverty reduction. Most of the benefits
from agricultural investment under an autarky economy are reaped by urban consumers
and majority of rural population may suffer and they account for majority for Egyptian
poor population. In summary, investing in agriculture and in rural areas is a must to lift rural poor out of poverty, but free trade in agriculture is a pre-condition for this to
happen.