Labour Productivity and Energy Use in a Three‐Sector Model: An Application to Egypt

This article 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 labour 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 labour productivity. Employing a Kaldor‐Verdoorn productivity rule in industry augmented with energy intensity — energy per unit of labour — as an argument, we emphasize that labour 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.