Modeling economic growth factors in Egypt: A quantile regression approach

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This paper investigates the sources of Egypt’s economic growth over the course of four generations of reforms from 1991 to 2019. To examine the contribution of input factors to economic growth, we used the augmented Solow model, which includes both human and physical capital accumulation. Variables employed in the analysis are Gross Domestic Product, capital, productivity, human capital, and employment. The study uses quantile regression econometric modeling to examine the sources of growth in the Egyptian economy at various stages of reform and the convergence of income segmentations. Quantile Regression (QR) estimates for quantiles 0.1 through 0.9 showed varied results. Productivity’s coefficient increased from 0.27 in Q1 to 0.60 in Q8 which means that productivity has clearly had a large impact on the higher stages of economic growth. In addition, the higher income segmentations we go, the higher impact of productivity it gets. However, Capital and Human Capital go in the opposite direction where coefficients of capital deteriorated gradually from 0.3 in Q1 to 0.1 in Q9, and coefficients of human capital decreased from 0.15 for Q1 to reach 0.04 for Q9. Therefore, the main culprit behind this phenomenon is the deficiency in the savings rate and the increase in the population growth rate. For labor, its coefficient is negative all the time. It declined from -1.03 for Q1 to -1.46 for Q9. It indicates that the Egyptian economy is filled with disguised unemployment and exhausts all its potential for job creation. Moreover, this evidence indicates that productivity and human capital accumulation have become the most important sources of growth. The weak growth performance is attributed to the deficiency of investment in both physical and human capital. Furthermore, the findings show that economic growth is closely linked to trends in human capital, productivity, and capital, all of which are heavily influenced by savings volatility and population growth rates. Therefore, the Egyptian economy’s economic growth cycle is determined by savings and population growth rates. When these rates become in the trends enabling human capital, productivity, and capital to boom, strong capital accumulation appears and boosts economic growth and vice versa.