nep-ara New Economics Papers
on Arab World
Issue of 2010‒10‒23
seven papers chosen by
Quentin Wodon
World Bank

  1. Can Turkish Recessions Be Predicted? By Adrian Pagan
  2. Appraisal on End Products and Services Offered by Islamic Banks from Maqasid Shari’ah Perspective By Eddy Yusof, Ezry Fahmy; Kan, Zusuff
  3. The Determinants and Policy Implications of Off-Balance Sheet Activities in MENA Countries Commercial Banks By Ahmad Khasawneh; M. Kabir Hassan
  4. Natural resource wealth “a truly double edged sword?”: a comparative study between Iran and Norway By Nasrollahi Shahri, Nima
  5. The impact of trade liberalization on manufacturing employment and wages in Egypt 1990-2007 By Said, Mona; Elshennawy, Abeer
  6. Sovereign Risk and Macroeconomic Fluctuations in an Emerging Market Economy By Markus Kirchner; Malte Rieth
  7. Financing Higher Education in Tunisia By Tahar Abdessalem

  1. By: Adrian Pagan (University of Technology, Sydney)
    Abstract: There is much scepticism about the ability to predict recessions. Harding and Pagan (2010b)have argued that this is because the definition of a recession involves the signs of future growth rates of economic activity and there is little predictability of these from the past. Turkey represents an interesting case study since growth in Turkish GDP features quite high serial correlation, suggesting that growth itself is predictable. Thus I want to examine whether it is possible to predict recessions in Turkey. As there seems only a small published literature on this it will be necessary to indicate what definition of recession is to be used and what information might be available to make a prediction of such an event. We found that using information from past macroeconomic variables would result in only limited success in predicting Turkish recessions.
    Keywords: Conditional CAPM
    Date: 2010–10
  2. By: Eddy Yusof, Ezry Fahmy; Kan, Zusuff
    Abstract: Question arises whether the products and services offered by the Islamic financial institutions (IFIs) genuinely meeting the requirement of Shari’ah. At present, not only Shari’ah advisors have been appointed to scrutinize and endorse the new products and services. In fact, majority of the IFIs have established units or departments to ensure the documentations, legal and Shari’ah framework, the process and procedure, and implementation are in line with the precept of Shari’ah. IFIs not only must avoid riba, but as well as other important elements such as gharar, deception, inequality, duress in developing and executing the end products of IFIs in order to ensure justice and social welfare prevail. This could only be achieved if the products and services approved uphold the importance of Maqasid Shari’ah. This paper will evaluate the key value chain in product approval process, role of Shari’ah advisor in approving products and services in IFIs as well as to raise possible issues and challenges related to the value chain. This paper will also look into the importance of Maqasid Shari’ah in product approval process as it is a vital element to be considered so as to avoid legal conflicts, litigation risk, instability (reputational risk) to the IFIs, tarnish the image of so called Shari’ah compliance products, uphold justice (contracting parties) and more importantly the pure teaching of Islam.
    Keywords: Islamic financial institutions; Shari’ah committee; Maqasid Shari’ah.
    JEL: D70 Z12 D20 G30 D49 G21
    Date: 2010
  3. By: Ahmad Khasawneh (Hashemite University, Jordan); M. Kabir Hassan
    Abstract: Although there is literature about off-balance sheet (OBS) activities in the banking system, this is the first paper that investigates the off-balance sheet activities in the Middle East and North Africa (MENA) banking industry. It aims to test the tax regulatory hypothesis and the market discipline hypothesis in determining OBS activities of MENA commercial banks using a panel dataset for the period 1996–2007. We employ Mansfield’s (1961) logistic diffusion model and we consider OBS activities as real financial innovation following a time trend diffusion curve. The model is modified to include regulatory and non-regulatory bank-specific factors in addition to macroeconomic factors. We also added a country dummy vector to incorporate the country’s institutional and financial environment and time dummy vector to control for the political and economic events over time. The results reveal that OBS activities do not follow Mansfield’s financial diffusion model, and that adoption is decreasing over time. Regulatory tax hypothesis is rejected for the case of MENA banks since most of them face high regulatory pressure which negatively affects the OBS adoption. The results also suggest that OBS activities follow the business cycle notion and that the usage decision depends on economic conditions. Moreover, there exists an informational economy of scope between loans and OBS activities. Banks will participate more in OBS activities to reduce their risk resulting from loans. Also, OBS activities are profit driven. Political and economic events negatively affect MENA banks’ OBS activities. The implications of these results suggest that regulations, institutional and technological deficiency in MENA countries prevent the banking system from adopting different financial innovations.
    Date: 2010–10
  4. By: Nasrollahi Shahri, Nima
    Abstract: This is an analytical comparative study done from a historical perspective between Iran and Norway as classic examples of countries touched by resource abundance contrastingly. The study tries to highlight the factors which turn oil riches into a curse so as to serve as a brief practical set of guidelines for countries facing the possibility of a natural resource related revenue increase. This study, however, does not purport to cover all the factors in play, but is rather of an interdisciplinary nature demonstrating the significance of Politics in the fate of Oil-rich countries. An abridged account of the petroleum sector and some other relevant information about the two states is initially given. The study then focuses on historical, economic, management and political differences which could have been influential in the way the two countries have been affected by their riches. A number of key differences are listed and elaborated on in more detail with the aid of examples invoked from similar countries. The study finds that factors such as the political structure of a country as well as its population and timing of oil discoveries, as factors not completely controlled by the state, carry a lot of weight in determining how successful a country is likely to be in managing its resources.
    Keywords: Resource riches; resource curse; Norway; Iran
    JEL: A12 D72 A10
    Date: 2010–03–20
  5. By: Said, Mona; Elshennawy, Abeer
    Abstract: This paper explores the impact of trade liberalization on manufacturing employment and wages over a period 1993-2006, a period coinciding with significant reduction in trade barriers and rising unemployment. Despite increasing import penetration, the paper shows that employment has increased across all manufacturing industries. Data from Egypt’s labor market survey confirm that layoffs as a result of trade liberalization is not among the factors responsible for unemployment. On the other hand, regression analysis shows that the reduction in tariffs and increasing export orientation has been associated with an increase in wages in manufacturing industries though the role of export orientation in influencing poor wages has not been significant. Meanwhile, quantile regressions reveal that the impact of both the reduction in tariffs and increase in export orientation has not been uniform across the different quantiles of the wage distribution. The paper further points out to the possibility that further reduction of trade barriers might lead to high adjustment costs in terms of long spells of unemployment or lower pay on grounds of old age and low educational attainment of Egypt’s work force. Adjustment policies in the form of direct job search assistance as country experience illustrates is considered to be the most appropriate form of adjustment assistance.
    Keywords: Trade liberalization; employment; wages; adjustment costs; adjustment assistance
    JEL: F16 J31 F14
    Date: 2010
  6. By: Markus Kirchner (University of Amsterdam); Malte Rieth (University of Dortmund)
    Abstract: This paper assesses the role of sovereign risk in explaining macroeconomic fluctuations in Turkey. We estimate two versions of a simple New Keynesian small open economy model on quarterly data for the period 1994Q3-2008Q2: A basic version and a version augmented by a default premium on government debt due to a perceived risk of sovereign debt default. Model comparisons clearly support the augmented version since it leads to stronger internal propagation and hence smaller shocks are required in order to reconcile the observed dynamics of nominal and real variables, leading to better forecasting performance. The estimated default probability is highly debt-elastic, indicating that default fears are a relevant concern. The results suggest that the augmented model may lead to a better understanding of macroeconomic fluctuations in emerging market economies that are subject to sovereign risk. In terms of policy implications, counterfactual experiments show that both more active monetary policy and stronger fiscal feedbacks from debt on taxes can lead to less volatile inflation and debt dynamics, but higher debt feedbacks on taxation additionally reduce expected default rates.
    Keywords: Sovereign default risk; Macroeconomic fluctuations; Emerging market economies; Small open economy models; Monetary and fiscal policy
    JEL: E10 E30 E63 H30
    Date: 2010–11–10
  7. By: Tahar Abdessalem (Ecole Polytechnique, Tunisia)
    Abstract: This paper focuses on Tunisia, which like other developing countries, has allocated increasing levels of resources to education, particularly higher education, mainly through public funding over the past few decades. In 2005-2008, public expenditure on education amounted to around 7.4 percent of GDP, with 2 percent allocated to higher education. However, in the last few years, the budgetary constraints have increased, and are likely to remain so in the near future. These budgetary constraints exist within a context of rapidly increasing student enrollment, and the need to improve the quality of education to insure better employability of graduates. In light of this situation, public policy is obliged to define orientations and programs, improving quality and efficiency while reducing costs and resource wastage, to enhance access and equity. This paper is organized as follows: it begins with an assessment of public expenditure on higher education in Tunisia, with respect to its adequacy, efficiency and equity. Next, in section 2, we explore the challenges posed to financing by demographic evolution, the quality of education and private provision. Section 3 examines some financing reinforcement strategies, and analyzes feasible measures to raise private funding contributions. Section 4 provides some concluding remarks.
    Date: 2010–10

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