nep-ara New Economics Papers
on Arab World
Issue of 2010‒07‒03
five papers chosen by
Quentin Wodon
World Bank

  1. The Impact of Oil Prices on the Real Exchange Rate of the Dirham: a Case Study of the United Arab Emirates By Al-mulali, Usama; Che Sab, Normee
  2. Veiling By Jean-Paul Carvalho
  3. Sovereign Wealth Funds as domestic investors of last resort during crises By Hélène Raymond
  4. Fiscal policy and growth in Saudi Arabia By Ghazi A. Joharji; Martha A. Starr
  5. The economy-wide effects of further trade reforms in Tunisia's services sectors By Dee, Philippa; Diop, Ndiame

  1. By: Al-mulali, Usama; Che Sab, Normee
    Abstract: This study investigated the impact of oil shocks on the real exchange rate of the United Arab Emirates (UAE) dirham. Time series data were used for the period 1977 to 2007 covering four important oil shocks. Five variables have been used in this study, with the real exchange rate of the dirham as the dependent variable and the gross domestic product per capita, oil price, trade balance, and foreign direct investment inflows as the independent variables. In this study we used the Johansen-Juselius cointegration procedure, and conducted the Granger causality tests based on the VECM. Through this research, we found that a fixed exchange rate to the U.S. dollar is not an appropriate exchange rate regime for the UAE. This is because when the price of oil increases, and with a fixed exchange rate regime, this would lead to rapid growth in GDP and liquidity in the UAE economy. This in turn causes domestic prices to increase, which results in high levels of inflation.
    Keywords: oil Prices; real exchange rate; UAE; VAR
    JEL: E30 F31 Q43
    Date: 2009–06–23
  2. By: Jean-Paul Carvalho
    Abstract: Veiling among Muslim women is modelled as a form of cultural resistance which inhibits the transmission of secular values. Individuals care about opinions of their community members and use veiling to influence these options. Our theory predicts that veiling is highest when individuals from highly religious communities interact in highly secular environments. This accounts for puzzling features of the new veiling movement since the 1970s. Though veiling helps retain religious values, we show taht bans on veiling aimed at assimilation can be counterproductive. By inducing religious types to segregate in local communities, bans on veiling can lead to increased religiosity.
    Keywords: Veil, Islamic revival, Signalling, Identity, Economics of religion
    JEL: C72 C73 Z1
    Date: 2010
  3. By: Hélène Raymond
    Abstract: Usual definitions of Sovereign Wealth Funds (SWFs) put emphasis on their foreign investments. But after September 2008, some Sovereign Wealth Funds refrained from foreign investments and intervened to support their home economies during the crisis. We show that the interventions of Sovereign Wealth Funds as domestic “investors of last resort” are far from marginal and that they are not a passing innovation of the last global crisis. We review first the cases of interventions of SWFs as “shareholders of last resort” and differentiate interventions targeted on banks, from more general interventions designed to support non financial firms. We also run some regressions to quantify the impact of Gulf SWFs’ interventions on their home Stock returns and volatility. We find that the interventions of the Kuwaiti SWF were unsuccessful, whereas the Qatari intervention of October 2008 managed to rise effectively the Stock market return in the short run. We then turn to the interventions of SWFs as “lenders of last resort” and insurance funds against major crises. In some cases (Russia, 2009; Australia, 2007-2008) the lending by SWFs is targeted on the home banking sector. SWFs can provide medium term financing to ease the liquidity constraints of banks, whereas Central Banks’ loans are mostly at short term. But the intervention of Saudi Arabian SWF in 2008 was of a different kind, as the lending was targeted on non financial firms to make up for banks’ reluctance to lend and stimulate the economy. Lastly we discuss the role of Sovereign Wealth Funds as insurance funds against major crisis. SWFs may be used for government spending during crises or even intervene on Stock markets to counter speculative attacks, as was illustrated by the interventions of the Singaporean SWF GIC and of the HKMA.
    Date: 2010
  4. By: Ghazi A. Joharji; Martha A. Starr
    Abstract: Whether government spending can boost the pace of economic growth is widely debated. In the neoclassical growth model, it is supplies of productive resources and productivity that determine growth in the long-run. In endogenous growth models, an increase in government spending may raise the steady-state rate of growth due to positive spillover effects on investment in physical and/or human capital. This paper examines the relationship between government spending and non-oil GDP in the case of Saudi Arabia. Using time-series methods and data for 1969-2005, we find that increases in government spending have a positive and significant long-run effect on the rate of growth. Estimated effects of current expenditure on growth turn out to exceed those of capital expenditure -- suggesting that government investment in infrastructure and productive capacity has been less growth-enhancing in Saudi Arabia than programs to improve administration and operation of government entities and support purchasing power. We discuss possible reasons for this finding in the Saudi case and draw some policy implications.
    Keywords: Fiscal policy, growth, Saudi Arabia JEL classification: E62, O40, O53
    Date: 2010–05
  5. By: Dee, Philippa; Diop, Ndiame
    Abstract: The purpose of this paper is to benchmark Tunisia against other emerging economies in terms of the regulatory barriers affecting particular services sectors, and to assess the economy-wide effects of further liberalizing these services trade restrictions, compared with reducing the dispersion in barriers to its merchandise trade. On the basis of a rather restricted sample of services sectors, partial regulatory reform would yield gains roughly equivalent to full unilateral reform of manufacturing tariffs, but roughly one-tenth the gains from full bilateral reform of border protection in agriculture with the European Union. The adjustment costs associated with these services trade reforms would be minimal. The paper identifies the reasons why the gains from these services reforms are relatively small, and argues that a wider set of reforms could provide win-win outcomes and even fewer adjustment costs. By contrast, the gains in agriculture and manufacturing tend to come at the expense of domestic output in the reforming sectors -- the gains are greater, but so too are the adjustment costs.
    Keywords: Transport Economics Policy&Planning,Banks&Banking Reform,Emerging Markets,Economic Theory&Research,Markets and Market Access
    Date: 2010–06–01

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