Allocating fiscal stimulus during COVID-19 crisis based on sectoral linkages in Egypt for increasing growth and reducing unemployment

Abstract

Purpose This paper aims to study the inter-sectoral linkages in the Egyptian economy, to increase the efficiency of allocating L.E 100bn fiscal stimulus package (FSP) to tackle the economic fallout from COVID-19 based on the strength of the backward and forward linkages of various sectors, and the values of both employment and value-added multipliers. The paper also measures the impact of the new FSP on the capability of various sectors in creating job opportunities and increasing economic growth. Design/methodology/approach The paper studies the intersectoral linkages by calculating backward and forward linkages index based on the latest input and output tables available for the Egyptian economy published in 2018. It also depends on a bivariate optimization model to distribute new investments allocated through the FSP based on the values of both employment and value-added multiplier for those sectors. The paper calculated both employment and value-added coefficients to measure the impact of the FSP on creating job opportunities and increasing growth rates. Findings Based on the results of the empirical analysis, both key sectors (with strong backward and forward linkages) and sectors with strong backward linkages have the highest impact on creating job opportunities and increasing growth rates in the Egyptian economy, which means that allocating FSPs in a way which targets those sectors, especially during economic crisis, could help in increasing the positive impacts of those packages. Originality/value The paper is based on the unbalanced growth theory of Hirschman and uses the empirical analysis to study the intersectoral linkages and allocate new investments through FSP through different sectors. The main policy implication of the empirical results of this paper suggests targeting the key sectors and the sectors with strong backward linkages during tough economic times related to COVID-19, to increase the positive impact of the package on the whole economy.