nep-ara New Economics Papers
on Arab World
Issue of 2010‒10‒09
six papers chosen by
Quentin Wodon
World Bank

  1. Do Islamic Banks Have Greater Market Power? By Laurent Weill
  2. The Politics of Investment and Growth in Egypt: Towards A New Approach By Abla Abdel-Latif; Hubert Schmitz
  3. Testing for “contagion” of the subprime crisis on the Middle East and North African stock markets : A Markov Switching EGARCH approach By Wajih Khallouli; Modibo René Sandretto
  4. Inequality of Opportunity in Egypt By Nadia Belhaj Hassine
  5. Bank Specific, Business and Institutional Environment Determinants of Banks Nonperforming Loans: Evidence from MENA Countries By Abdelkader Boudriga; Neila Boulila Taktak; Sana Jellouli
  6. The Political Economy of Attracting Public Funds: The Case of Lebanon By Nisreen Salti; Jad Chaaban

  1. By: Laurent Weill (University of Strasbourg and EM Strasbourg Business School)
    Abstract: The aim of this paper is to investigate whether Islamic banks have greater market power than conventional banks. Indeed Islamic banks may benefit from a captive clientele, owing to religious principles, which would be charged greater prices. To measure market power, we compute Lerner indices on a sample of banks from 17 countries in which Islamic and conventional banks coexist over the period 2000–2007. Comparison of Lerner indices shows no significant difference between Islamic banks and conventional banks. When including control variables, regression of Lerner indices even suggests that Islamic banks have a lower market power than conventional banks. A robustness check with the Rosse-Panzar model confirms that Islamic banks are not less competitive than conventional banks. The lower market power of Islamic banks can be explained by their different norms and their different incentives.
    Date: 2010–09
  2. By: Abla Abdel-Latif (American University in Cairo); Hubert Schmitz
    Abstract: How can governments achieve substantial increases in productive private investment? ‘Improve the investment climate’ is the dominant advice. However, national-level investment climate approaches have been criticized for not giving adequate attention to context and feasibility. This paper experiments with an approach which addresses these concerns by focusing on sectors and on the relationships between policy makers and investors. After setting out a framework for using this approach, the paper then examines whether it can explain the considerable inter-sectoral and inter-temporal differences in investment in Egypt. The paper shows that where public-private relationships are based on common interest, obstacles to investment and growth are more likely to be removed. The risk of abuse of such public-private interaction is acknowledged but in the examined sectors they have been effective transitional arrangements for enhancing investment and growth and for inducing a new dynamic.
    Date: 2010–09
  3. By: Wajih Khallouli (Ecole Supérieure des Sciences Economiques et Commerciales de Tunis, 1089 Montfleury, Tunisie); Modibo René Sandretto (Université de Lyon, Lyon, F-69003, France; CNRS, GATE Lyon St Etienne, UMR 5824, 93, chemin des Mouilles, Ecully, F-69130, France; ENS-LSH, Lyon, France)
    Abstract: In this paper, we investigate whether the recent financial turmoil which arose in the United States has contaminated the Middle East and North African countries (MENA). In contrast to Lagoard-Segot and Lucey (2009), we try to identify the existence of pure contagion (Masson, 1999) rather than shift-contagion (Rigobon, 2003). Then, we explicitly define financial “contagion” in accordance with Eichengreen et al. (1996) and we extend the Cerra and Saxena (2002) methodology by using a Markov-Switching EGARCH model introduced by Henry (2009) in order to identify contaminated MENA stock markets. Our results provide evidence of a persistence of recession characterised by low mean/high variance regimes which coincides with the third phases of the subprime crisis. In addition, there is evidence of mean and volatility contagion in MENA stock markets caused by the US stock market.
    Keywords: Subprime crisis, Contagion, MENA stock markets, Markov switching EGARCHmodel
    JEL: C32 F31 G15
    Date: 2010
  4. By: Nadia Belhaj Hassine (Economic Research Forum, Cairo, Egypt)
    Abstract: This paper evaluates the contribution of inequality of opportunity to inequality in earnings in Egypt and analyzes its evolution across four age cohorts and over three periods of time. On average, inequality of opportunity is found to account for 30 percent of total earnings inequality. The results reveal important variations of the inequality of opportunity indicators across age cohorts and over time. We find evidence that an important part of earnings inequality in the age cohort between 40 and 49 years old is due to unequal access to opportunities. The findings indicate that despite a small increase in total earnings inequality over time, the share of inequality of opportunities is decreasing. A sharp decline is observed in 2006.
    Date: 2010–09
  5. By: Abdelkader Boudriga (University of Tunis); Neila Boulila Taktak; Sana Jellouli
    Abstract: The paper empirically analyzes the determinants of nonperforming loans (NPL) and the potential impact of both business and institutional environment on credit risk exposure of banks in the MENA region. Looking at a sample of 46 banks in 12 countries over the period 2002–2006, we find that, among bank specific factors, foreign participation coming from developed countries, high credit growth and loan loss provisions reduce the NPL level. However, highly capitalized banks experience high level of credit exposure. Credit quality of banks is also positively affected by the relevance of the information published by public and private bureaus. Finally, our findings highlight the importance of institutional environment in enhancing banks credit quality. Specifically, a better control of corruption, a sound regulatory quality, a better enforcement of rule of law, and a free voice and accountability play an important role in reducing NPL in the MENA countries.
    Date: 2010–09
  6. By: Nisreen Salti (Department of Economics, American University of Beirut); Jad Chaaban
    Abstract: Using a new exceptional dataset on 80 poverty pockets in Lebanon in 2004, we propose to test the confessional and political channels of influence through which these pockets are potentially able to attract development assistance. Lebanon constitutes a perfect case study for the interaction of identity-based polarization and fractionalization (based on confession) and poverty in the context of a developing country. We investigate the effect on the level of development assistance funds transferred to municipal governments of polarization, fractionalization and sectarian distance at the level of the poverty pockets and find robust results indicating that polarization and fractionalization are significant determinants of a pocket’s ability to attract funding. We also find that one of our measures of sectarian distance, the share in the larger district of a poverty pocket’s largest sect, also generates more revenue for the pocket. Pockets with a mix of sects have greater ease in attracting funds, which is consistent with the prerogative of confessional balance in government policy dictated by the power-sharing game in the post-war era. The results are robust to the inclusion of a wide variety of controls. They put into question the design of effective channels to allocate development funds in polarized societies.
    Date: 2010–09

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