Optimal allocation of investments for a desired economic growth

The results of a study, to determine the optimal distribution of investment s in each sector of the Egyptian economy is presented. The main objective c riterion is to attain a desired late of growth of the gross domestic produc t (GDP) over the next few years. Optimal control concepts and adaptive filt ering techniques are used to determine the best strategy to achieve the obj ectives. The Egyptian economy was divided into 13 sectors, Using the World Bank data books, we obtained the time series of investment over the period 1981-91, and the late of growth of the Egyptian GDP over the same period. E very sector of the economy was correlated with the rate of growth, and for every sector we generated an autoregressive moving average (ARMA) model. Th e endogenous variable in each model is the rate of growth of the GDP, and t he sector al investment was the exogenous variable. The objective was ro fi nd the required investment in each sector to reach a predefined level of ra te of growth, subject to constraints on rile available funds. Other constra ints included the smoothness of the investment over the years and the smoot hness of the rare of growth. Another model was developed that relates the r are of growth as endogenous variable to the investment in the thirteen sect ors as exogenous variables. It was used within the optimization algorithm t o achieve the same objective of a fixed rate of growth. An adaptive time-va rying algorithm was developed, for both models, to find the open loop (time values) of the investment to minimize the cost function subject to the dif ferent constraints. The results were obtained for the period of 1992-97 wit h a late of growth of 4%. The results of the models, however, were not iden tical. The more accurate all-sectors model showed that sectors such as cons truction, industry and transportation are the most profitable, and that mos t of the investments need to be directed towards them.