Labor productivity and energy use in a three sector model: an application to Egypt

This paper presents a model of a developing economy with three sectors| industry, agriculture, and energy. Industry and energy are assumed to be demand- constrained, but agriculture supply-constrained. The model highlights (a) structural transformation, through labor transfer from agriculture to industry, (b) inflation, driven by the interaction of demand and the supply constraint in agriculture, and (c) the link between energy use and labor productivity. Employing a Kaldor-Verdoorn productivity rule in industry augmented with energy intensity|energy per unit of labor|as an argument, we emphasize that labor productivity growth is driven by energy intensity rather than energy productivity growth. As a consequence, emissions reduction without North-South technology transfer and financial assistance costs growth.