nep-ara New Economics Papers
on Arab World
Issue of 2010‒06‒04
eight papers chosen by
Quentin Wodon
World Bank

  1. Was Shari'ah indeed the culprit? By Cizakca, Murat
  2. Central banking and monetary management in islamic financial environment By Hanif, M. Nadim; Sheikh, Salman
  3. Bank level stability factors and consumer confidence – a comparative study of Islamic and conventional banks’ product mix By Hussein, Kassim
  4. Obstacles to growth for small and medium enterprises in Turkey By Seker, Murat; Correa, Paulo Guilherme
  5. Role of Governance and Institutional Environment in Affecting Cross Border M&As, Alliances and Project Financing: Evidence from Emerging Markets By Leonardo Becchetti; Nada Kobeissi
  6. Terrorism and Capital Markets: The Effects of the Istanbul Bombings By Nikos Christofis; Christos Kollias; Stephanos Papadamou; Apostolos Stagiannis
  7. Strict Nash equilibria in large games with strict single crossing in types and actions By Stelios Michalopoulos; Alireza Naghavi; Giovanni Prarolo
  8. Radical Islamic Terrorism in the Middle East and Its Direct Costs on Western Financial Markets By Martin Mullins; John Garvey

  1. By: Cizakca, Murat
    Abstract: Why is the Islamic world, once the centre the medieval world, now lagging so far behind? The importance of the topic has attracted economic historians trying to explain this dramatic story of economic decline. Among the various explanations those provided by Kuran concerning the alleged rigidity of Islamic jurisprudence and the Islamic law of inheritance are best known. In this article I will closely examine his views and provide an alternative explanation as to why Islamic companies could not expand beyond a certain size during the early modern age.
    Keywords: Corporations; Islamic law; Islamic backwardness; Islamic law of inheritance.
    JEL: H11 N00 G30
    Date: 2010
  2. By: Hanif, M. Nadim; Sheikh, Salman
    Abstract: Continuous growth in Islamic finance calls for studying the framework in which the monetary policy maker (i.e., central bank) performs its functions. Central banks in Muslim countries are using various instruments for monetary policy purpose including interest rate. As a result, Islamic financial institutions (IFIs) are facing issues in benchmarking the price of financial instruments. Acceptable solution to benchmarking lies in the presence of a real economic activity in the base of any proposal and its feasibility for business performance when put against conventional banking. This paper presents empirical evidence of statistical equivalence of nominal GDP growth rate and official interest rate for ‘advanced,’ ‘all,’ and some Muslim countries. We propose nominal GDP growth rate as benchmark for pricing domestic financial transactions of IFIs as well as for pricing external bilateral/ multilateral loans. The paper also suggests nominal income targeting as monetary policy regime.
    Keywords: Islamic Finance; Central Bank; Interest Rate; Nominal Income Targeting
    JEL: G12 E58
    Date: 2009–11
  3. By: Hussein, Kassim
    Abstract: This study examines the behaviour of key bank level stability factors of liquidity, capital, risk-taking and consumer confidence in Islamic and conventional banks which operate in the same market. Using fixed effect sample of 194 banks of Gulf Cooperating Countries between 2000 and 2007, we found that liquidity is not determined by bank’s product mix but rather attributed to systematic factors. However, non performing assets (representing loans to sub prime borrowers) have positive and significant relationship with liquidity implying that during the crisis, Islamic banks tend to take stringent risk strategies compared to conventional banks. Furthermore, Islamic banks generally tend to provide higher consumer confidence levels as they were more capitalized than conventional banks, although conventional banks had carried higher averages of liquidity compared to Islamic banks. Consumer confidence levels or depositors’ discipline as proxied by deposits and customer funding over liabilities generally appear to be higher in Islamic banks than conventional banks.
    Keywords: Bank stability; consumer confidence; depositors’ discipline; Islamic banks; Gulf Cooperating Countries
    JEL: D12 D40 G21
    Date: 2010–04–01
  4. By: Seker, Murat; Correa, Paulo Guilherme
    Abstract: Many studies have shown that firm growth decreases monotonically with size and age. In this study, the authors investigate employment growth of firms in Turkey with an emphasis on small and medium size enterprises. In Turkey, small and medium size enterprises account for almost 77 percent of employment and play a crucial role in the economy. However, the analysis of firm dynamics in Turkey shows that medium-size firms (51-250 workers) are theslowest growing group in the economy. Moreover, small and medium size enterprises grow at a slower rate in Turkey than in several comparator countries in the Eastern Europe and Central Asia region. After determining this irregularity, the paper analyzes how the investment climate affects firm growth and finds that improved access to finance is the most important factor that significantly increases firm growth rates.
    Keywords: Microfinance,Achieving Shared Growth,Small Scale Enterprise,Access to Finance,Emerging Markets
    Date: 2010–05–01
  5. By: Leonardo Becchetti (:Faculty of Economics, University of Rome "Tor Vergata"); Nada Kobeissi (Long Island University, C.W. Post)
    Abstract: The growth in foreign activities has attracted numerous investigations on their flow into various regions of the world. The majority of these inquiries however have tended to focus on activities taking place between U.S.A and Europe, NAFTA countries, countries within Eastern and Central Europe, or within Asia-Pacific nations. There is a scarcity of research examining foreign investment activities in the emerging markets of the Middle East and North Africa (MENA) region. The goal of this paper is to void this gap by analyzing the patterns of such activities in this region. It focuses more specifically on components of foreign investment that are not usually included in the traditional measure of FDI, namely cross border M&As, alliances, and project financing. The paper explores the impact of governance and institutional environment in affecting investment activities in the region. It reports a strong association of economic freedom, property rights, and regulations with multiple proxies of foreign investments in the sample countries.
    Date: 2010–05–28
  6. By: Nikos Christofis; Christos Kollias; Stephanos Papadamou; Apostolos Stagiannis
    Abstract: Beyond the loss of life and personal injuries that the victims of terrorist actions suffer and the atmosphere of fear terrorists seek to create with their premeditated use of brutal violence, terror also has real economic and political costs that go beyond the immediate costs and damages of a terrorist attack. Terrorist actions can have a multitude of economic consequences that may adversely affect a number of economic indices, sectors and activities including their impact on capital markets. This paper sets out to examine the effect of these attacks on the Turkish Stock Market. It focuses its empirical investigation on the Istanbul stock-market and the impact that recent major terrorist incidents exerted on market behaviour. Findings reported herein indicate in some cases significant abnormal returns.
    Keywords: terrorism, capital markets, conditional volatility
    JEL: G14 G21 C22
    Date: 2010
  7. By: Stelios Michalopoulos; Alireza Naghavi; Giovanni Prarolo
    Abstract: This research examines the economic origins of Islam and uncovers two empirical regularities. First, Muslim countries, virtual countries and ethnic groups, exhibit highly unequal regional agricultural endowments. Second, Muslim adherence is systematically larger along the pre-Islamic trade routes in the Old World. The theory argues that this particular type of geography (i) determined the economic aspects of the religious doctrine upon which Islam was formed, and (ii) shaped its subsequent economic performance. It suggests that the unequal distribution of land endowments conferred di¤erential gains from trade across regions, fostering predatory behavior from the poorly endowed ones. In such an environment it was mutually beneficial to institute a system of income redistribution. However, a higher propensity to save by the rich would exacerbate wealth inequality rendering redistribution unsustainable, leading to the demise of the Islamic unity. Consequently, income inequality had to remain within limits for Islam to persist. This was instituted via restrictions on physical capital accumulation. Such rules rendered the investments on public goods, through religious endowments, increasingly attractive. As a result, capital accumulation remained low and wealth inequality bounded. Geography and trade shaped the set of economically relevant religious principles of Islam affecting its economic trajectory in the preindustrial world.
    Keywords: Religion; Islam; Geography; Physical Capital; Human Capital; Land Inequality; Wealth Inequality; Trade
    JEL: O10 O13 O16 O17 O18 F10 Z12
    Date: 2010–05
  8. By: Martin Mullins; John Garvey
    Abstract: Close examination of the behaviour of participants in financial markets in the aftermath of terrorist attacks is a valuable line of enquiry. In this paper, we bring together insights from field of finance and politics. Specifically, we examine trading patterns on highly liquid insurance-type financial instruments around a specific terrorist event. This approach provides an insight into risk perception around political violence and allows us to answer a number of key questions on the impact of terrorist attacks on economies and societies. When examined and processed, intraday financial trade data yields valuable empirical evidence on immediate reactions to the threat posed by terrorist groups. The methodology applied in this paper also tells us much about the geographical resonance of terrorist events. We clearly show that fear of economic disruption can be activated in Western markets by events that are often geographically remote. Importantly, these datasets allow us to judge the vulnerability of financial markets to terrorist attack. This potentially allows public authorities to safeguard our interests more effectively. Financial markets are one important element of a "neglected home front" and the risks posed by disruption to those markets are such as to merit our urgent attention.
    Date: 2010

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