nep-ara New Economics Papers
on Arab World
Issue of 2010‒11‒20
twelve papers chosen by
Quentin Wodon
World Bank

  1. The case against the Islamic gold dinar By Cizakca, Murat
  2. Solar Energy Cost Efficiency: A Simulated Case Study in the Egyptian Context By Dina El Bassiouny; Ehab Mohamed
  3. Can Turkish Recessions be Predicted? By Adrian Pagan
  4. Islamic finance and conventional financial systems. Market trends, supervisory perspectives and implications for central banking activity By Giorgio Gomel; Angelo Cicogna; Domenico De Falco; Marco Valerio Della Penna; Lorenzo Di Bona De Sarzana; Angela Di Maria; Patrizia Di Natale; Alessandra Freni; Sergio Masciantonio; Giacomo Oddo; Emilio Vadalà
  5. Cherry Picking or Driving Out Bad Management: Foreign Acquisitions in Turkish Banking By Canan Yildirim
  6. Dubai financial crisis: causes, bailout and after - a case study By Hasan, Zubair
  7. Turkey and the EU: A ‘new’ European identity in the making? By Ingrid Kylstad
  8. A Unified Framework to Measuring Inequality in the Arab Countries By Sami Bibi; AbdelRahmen El-Lahga
  9. Interest rate rule for the conduct of monetary policy: analysis for Egypt (1997:2007) By Rageh, Rania
  10. Analyzing Systemic Risk with Financial Networks An Application During a Financial Crash By Saltoglu, Burak; Yenilmez, Taylan
  11. Why Is Fiscal Policy Procyclical in MENA Countries? By Sarra Ben Slimane; Moez Ben Tahar
  12. The Impact of the Iraq War on US Consumer Goods Sales in Arab Countries By Sofronis Clerides; Peter Davis; Antonis Michis

  1. By: Cizakca, Murat
    Abstract: The claims that the Islamic gold dinar will avoid inflation and other ills of current economic crises are examined by studying how coinage systems actually functioned in history.The article shows that not only these claims are baseless but also that coinage would increase the prevailing interest rate in an economy - hardly an Islamic position. It is argued that a gold or silver based dinar would be harmful for Islamic societies and attempts to introduce them should therefore be prohibited.
    Keywords: Islamic gold dinar; interest rate; Gresham's Law; barter; commodity money; money as a medium of exchange; fiat money
    JEL: Z12 O53
    Date: 2010–11–12
  2. By: Dina El Bassiouny (Faculty of Management Technology, The German University in Cairo); Ehab Mohamed (Faculty of Management Technology, The German University in Cairo)
    Abstract: In Egypt, electric energy coming from fossil fuels represents around 85% of total electricity requirements. However, the supply of energy in the Arab world is expected to run dry in the coming 30-50 years. With the increase in energy needs, rise in fossil fuel prices, and the swelling of green house gas emissions, the use of renewable and more environment-friendly energy sources to supply power is gaining increased attention. Being a country on the Sunbelt, Egypt has great potential in utilizing solar energy to generate energy products and electricity. However, solar energy is still abandoned in Egypt due to its high costs. This paper first aims to examine the relative significance of several accounting and economic related variables to reduce solar energy costs. To be more specific, the paper seeks to examine the effect of using accounting and finance-based factors, related to depreciation schemes and financing options, to decrease solar energy costs. These factors are considered as a substitute for direct subsidies which are difficult to implement because of the narrow financial scope of the Egyptian government. The results of the study provide a number of policy implications that can be applied to make solar energy closer to cost-competitiveness and contribute to solve the energy problem in Egypt.
    Keywords: Solar Energy, Cost Efficiency, Government Incentives
    JEL: Q48 Q42
    Date: 2010–11
  3. By: Adrian Pagan (QUT/UTS)
    Abstract: In response to the widespread criticism that macro-economists failed to predict the global recession coming from the GFC, we look at whether recessions in Turkey can be predicted. Because the growth in Turkish GDP is quite persistent one might expect this is possible. But it is the sign of GDP growth that needs to be forecast if we are to predict a recession, and this is made more difficult by the persistence in GDP growth. We build a small SVAR model of the Turkish economy that is motivated by New Keynesian models of the open economy, and find that using the variables entering it increases predictive success, although it is still the case that the predictive record is not good. Non-linear models for Turkish growth are then found to add little to predictive ability. Fundamentally, recession prediction requires one to forecast future shocks to the economy, and thus one needs some indicators of these. The paper explores a range of indicators for the Turkish economy, but none are particularly advantageous. Developing a bigger range of these indicators should be a priority for future Turkish macro-economic research.
    Keywords: Business cycles, binary models, predicting recessions
    Date: 2010–10–10
  4. By: Giorgio Gomel (Banca d'Italia); Angelo Cicogna (Banca d'Italia); Domenico De Falco (Banca d'Italia); Marco Valerio Della Penna (Banca d'Italia); Lorenzo Di Bona De Sarzana (Banca d'Italia); Angela Di Maria (Banca d'Italia); Patrizia Di Natale (Banca d'Italia); Alessandra Freni (Banca d'Italia); Sergio Masciantonio (Banca d'Italia); Giacomo Oddo (Banca d'Italia); Emilio Vadalà (Banca d'Italia)
    Abstract: The paper analyses Islamic finance from the central bank and supervisory authorityÂ’s perspective, focusing on the European and Italian context. It depicts a rapidly expanding sector, with recent annual growth rates of between 10 and 15 percent and a geographical presence that now reaches several Western countries. Future prospects, however, could be hampered by problems concerning the standardization of products, governance structure, supervisory regulation, monetary policy instruments, and liquidity management. Islamic intermediaries are not necessarily riskier than traditional counterparts but their operational structure tends to be more complex. Key issues in supervision include the treatment of investment accounts and transparency. It has been seen that there are limits to the efficiency of the monetary policy instruments developed so far to remedy the prohibition of interest; moreover, the growth of interbank and money markets is hindered by a shortage of "Shari'ah-compliant" products. Problems arising from the participation of Islamic banks in payment systems are also discussed.
    Keywords: Islamic finance, Islamic financial institutions, supervision, monetary policy instrments, payment systems
    JEL: G20 F39 Z12
    Date: 2010–10
  5. By: Canan Yildirim (Department of International Finance, Kadir Has University)
    Abstract: This paper analyzes the determinants of cross-border acquisitions and the impact of foreign acquisitions on performance in the Turkish banking sector. The results suggest that foreign banks target relatively better performing banks to acquire, and that post-acquisition performance of the targets does not improve. There is some evidence that both established and newly acquired foreign banks focus on expanding their market shares. Concerning static-ownership effects, the results also show that, in general, foreign-owned and state-owned banks perform as well as private-owned domestic banks. The only exception is with respect to non-performing loans, in that state-owned banks seem to suffer from asset quality problems.
    Date: 2010–11
  6. By: Hasan, Zubair
    Abstract: This paper explains the circumstances that led Dubai to the current financial crisis that still lingers. It analyses the steps taken at various stages by the city state to ameliorate the situation including the bailout help the UAE Government eventually granted. It spotlights the role international rating agencies played in aggravating the situation and demands that their activities be brought under regulatory nets now being strengthened across the world in the context of ongoing global meltdown. Finally, it warns of challenges Dubai may be facing in years ahead and what could be done to pre-empt them. The argument is cast with a backdrop of the economic position of UAE in the Middle-East and happenings at the global level in the arena of finance – mainstream and Islamic.
    Keywords: Islamic finance; Global meltdown; Dubai crisis; Rating agencies; financial architecture.
    JEL: J38 G10 G21
    Date: 2010–07
  7. By: Ingrid Kylstad
    Abstract: This paper conducts an ontological inquiry into the identity of the European Union, and seeks to establish whether its core identity is of a cultural or political nature through looking at the debate generated by Turkey’s application for EU membership. The concepts of ‘the other’, the nation-state and a secularism rooted in Christianity contributes towards a peculiar culturalist understanding of the EU project both on the left and on the right side of the political spectrum. The debate also demonstrates that there is a gap between what the EU ought to be judging from its fundamental documents, and what kind form of the EU ‘Europe’ is ready for. The liberal idea of the EU being a purely political union based on Kantian ideals will require a whole new language for talking about Europe.
    Keywords: EU, Turkey, European identity, Kant, enlargement, the other
    Date: 2010–11
  8. By: Sami Bibi (Department of Economics, University of Laval, Quebec, Canada); AbdelRahmen El-Lahga
    Abstract: The purpose of this paper is to apply a general and unified approach to inequality measurement in Arab countries. To this end, a wide class of inequality indices, proposed by Olmedo et al. (2009) and based on the Bonferroni (1930) curve, rather than the Lorenz curve, is used. When local measures of inequality are aggregated using an appropriate weighting system, familiar indices such as the Gini index can be retrieved. The choice of the weighting system yields a variety of inequality measures that depend on which part of the income distribution the overall inequality index is focused. Our framework offers a reassessment of inequality trends in the Arab world. Our results show that whatever the trend of inequality experienced by the selected Arab countries, the poorest people do not seem to be much affected by the changes in the inequality patterns. For instance, when some countries undergo a rise in overall inequality, changes in the inequality experienced by the poorest population are less pronounced. Inversely, when inequality decreases, the richest percentiles seem to become locally more equal than poorer ones. These findings imply that change in the average income of the poorest is generally very low.
    Date: 2010–11
  9. By: Rageh, Rania
    Abstract: The main objective of the paper in hand is to examine the validity of using Taylor rule as a robust rule for conducting monetary policy in case of Egypt. In this context, the paper works through two main pillars. First: parts two and three; critically analyze the theoretical grounds for using an interest rate rule in conducting monetary policy. Second: part four; emphasize how the Taylor rule can be empirically estimated and evaluated. Consistently; this exercised while estimating and evaluating both simple backward and forward-looking Taylor rule for Egypt, guided by lessons from selected countries` experiences in estimating Taylor rule like U.S.A., U.K and Chile. JEL Classification Numbers: E52; E58
    Keywords: Keywords: central bank; monetary policy; Taylor rule.
    JEL: E58 E52
    Date: 2010–05–08
  10. By: Saltoglu, Burak; Yenilmez, Taylan
    Abstract: A financial network model, where the coded identity of the counterparties of every trade is known, is applied to both stable and crisis periods in a large and liquid overnight repo market in an emerging market economy. We have analyzed the financial crisis by using various network investigation tools such as links, interconnectivity, and reciprocity. In addition, we proposed a centrality measure to monitor and detect the ‘systemically important financial institution’ in the financial system. We have shown that our measure gives strong signals much before the crisis.
    Keywords: systemic risk; financial regulation; financial crisis; BASEL III; systemically important financial institution; Turkey; IMF
    JEL: D53 C45 F47 D85 C01
    Date: 2010–11–14
  11. By: Sarra Ben Slimane (University of Sousse); Moez Ben Tahar
    Abstract: TThe optimal fiscal policy is countercyclical, aiming to keep the output close to its potential. Nevertheless, it has been pointed out that developing countries are unable to run countercyclical fiscal policies. Several researchers have attributed these sub optimal fiscal policies to two groups of arguments. (i) The limited access to domestic or external funds may hinder the ability of government to pursue expansionary fiscal policy in bad time. (ii) The second group of factors explains that sub-optimal fiscal policies are associated with institutional theories. The standard argument suggests that countries pursuing poor fiscal policies also have weak institutions, widespread corruption, a lack of property rights and repudiation of contract. The main goal of this paper is to analyze empirically if the ability of MENA countries to conduct countercyclical fiscal policy is affected by the quality of their institutions, the nature of political regime and/or by the availability of financial resources either on the local or international capital markets. From our fiscal policy regression, we find that budget balance in MENA region is countercyclical. At the same time, total expenditure and total revenue are procyclical. We conclude that MENA countries are unable to run countercyclical fiscal policies if they have weak institutions, limited international access, a domestic credit market and democratic political regimes.
    Date: 2010–11
  12. By: Sofronis Clerides; Peter Davis; Antonis Michis
    Abstract: Did the rise in anti-American sentiment caused by the Iraq war affect sales of US goods abroad? We address this question using data on sales of soft drinks and fabric detergents in nine Arab countries. We find a statistically significant but modest and short-lived negative impact of the war on sales of US soft drinks in some countries but no impact on the sales of detergents in any country. Variation in aggregate market shares of US products across countries correlates with consumer attitudes toward the US in the soft drink market but not in the detergent market.
    Keywords: consumer behavior, consumer boycotts, Iraq war.
    Date: 2010–11

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