5.8 Effect of a continued fertility decline on 2019 GDP

• Estimate the impact of the share of the working-age population and dependency ratios on per capita growth and gross domestic savings for Egypt. • Quantify the opportunity cost of the reversal in Egypt’s fertility decline on

GDP and gross domestic savings through estimating GDP under a hypothetical scenario of continued fertility decline.

The following section describes the effects noted in the analysis.

Effect of a high dependency ratio on GDP Egypt experiences additional economic pressure resulting from a high dependency ratio. in appendix D, table D.1 shows the regression results based on the empirical model shown in equation (1) in that appendix, revealing a significant negative relationship globally between the dependency ratio and GDP per capita. When looking at heterogeneous effects using the binary variable for Egypt, a significant negative coefficient is also yielded, implying that a high dependency ratio further exacerbates the negative relationship.

Effect of a hypothetical continued decline on GDP On the basis of the above results and using the population projections estimated under the hypothetical scenario of a continued fertility decline (table B.2), we estimated the opportunity cost of the fertility-decline reversal. A continued decline in fertility would have made GDP per capita grow approximately 4.4 percentage points faster, resulting in 2019 GDP some lE 150 billion higher.

Using the regression results (appendix D), it is estimated that a 1 percentage point increase in the dependency ratio decreases GDP per capita growth by 0.37 percentage point. Using the hypothetical continued decline scenario results (table B.2), the dependency ratio would have been 51 percent instead of 63 percent in 2018, which would have lifted GDP per capita annual growth to approximately 7.9 percent from 3.5 percent. Using this higher hypothetical growth rate and multiplying it by 2018’s GDP yields the hypothetical 2019 GDP per capita,2 which is approximately lE 40,000 instead of lE 38,000 (in constant prices), a difference of about 5 percent.3 This difference multiplied by the hypothetical population in 2019 yields an aggregate GDP of lE 4.1 trillion instead of lE 3.9 trillion (at constant prices).4 figure 5.8 summarizes the results.

FIGURE 5.8

Effect of a continued fertility decline on 2019 GDP

The dependency ratio would have been 12 percentage points lower. The decline would have led to a 4.4 percentage point increase in GDP growth. GDP per capita would have been about LE 2,000 higher.

Aggregate GDP would have been about LE 150 billion higher.

Source: Original figure for this publication following the methodology of Cruz and Ahmed 2018. Note: GDP = gross domestic product; LE = Egyptian pound.