The Egyptian government suffers from job losses which came as a result of privatization (transfer of property from public sector to private sector). This is because the government stopped subsidizing the firms and therefore the firms gave up some of their employees. However, increase in investment will decrease unemployment in the economy because when investment is increased there will be more business and firms, there are more jobs that are available for workers especially if they are skilled. In order to increase investment the Egyptian government should cut its debt to the banks so that it encourages banks to start lending money to the business and investing firms. Moreover, the government can also decrease interest rates (the return generated on capital and the cost of borrowing money) in the economy to encourage borrowing from the banks and therefore increase investing in the economy as shown in figure-1, by decreasing r to r* the investment will increase from I to I*.
An increase in investment will also increase aggregate demand (The value of final goods and services) in the economy and capacity.
When AD increases, the economy will approach full employment level as shown in diagram-2, and more people will find jobs and level of unemployment again will decrease in the economy, and therefore the economy is experiencing economic development.
Another barrier that prevents from development is unskilled labor because of the shortcomings in the education system. Therefore, investing in human capital and subsidizing merit goods such as education and training more effectively will achieve more skilled labor in the economy. This will lead to efficiency and more productivity in the local market, which might lead to more competitiveness on the international level which will give the firms more incentive to expand and produce. As a result firms will need more employees and more jobs are available which decreases unemployment.
Income distribution is an important aspect of economic development. Rural areas in Egypt are not touched by the boom. Most of the income in the economy remains concentrated in the hands of a wealthy minority. Lorenz curve that measures the percent of income received by a portion of the population which will show that income is largely not distributed in the Egyptian economy as shown in figure-3. The smaller the shadowed area the more income is distributed because it becomes closer to the perfect distribution
Line.
Gini Coefficient shows the income equality by
measuring area between the line of absolute equality and the line of actual distribution of income. In order for Egypt to achieve economic development they should redistribute income though intervention in the economy.
One of the most effective policies to achieve income distribution is Taxation, which can be progressive, proportional or regressive as shown in figure-4.
For an economy like Egypt where income is greatly not distributed progressive taxation can be very efficient. For instance, the government can impose progressive tax, so that people with higher income will pay a higher portion of their income. This can help to redistribute income in an economy.
To sum up, the growth in Egypt needs to be targeted at those sectors that will reduce poverty. Income has to be more distributed within the economy. Moreover, Egypt should encourage investing through out decreasing interest rates, and cut government debt. This will make Egypt experience not only growth but economic development. However, this means that there will be too much government intervention in the market. This will decrease the firms’ incentive to work and expand. Moreover, progressive taxes might achieve income distribution, but it will give people less incentive to work and therefore it might cause a big decrease in labor productivity.
