nep-ara New Economics Papers
on MENA - Middle East and North Africa
Issue of 2017‒06‒25
seventeen papers chosen by
Paul Makdissi
Université d’Ottawa

  1. Family farming in the Near East and North Africa By Ray Bush
  2. Fiscal- Monetary Interdependence and Exchange Rate Regimes in Oil Dependent Arab Economies By Ibrahim Elbadawi; Mohamed Goaied; Moez Ben Tahar
  3. Young Gazelles and Aging Turtles: Understanding the Determinants of Employment Creation in the Labor Market in MENA Countries By Hassan Aly; Yousef Daoud; Amr Ragab; Ayhab Saad
  4. Young People’s Gender Role Attitudes Over the Transition to Adulthood in Egypt By May Gadallah; Rania Roushdy; Maia Sieverding
  5. Political Economy, Firm Survival and Entrepreneurship in Turkey: The Case of the Wealth Tax (1942) By Seven Ağır; Cihan Artunç
  6. In Search of A New Development Model For Tunisia: Assessing the Performance of the Offshore Regime By Leila Baghdadi; Sonia Ben Kheder; Hassen Arouri
  7. Utilising the judiciary to reject the popular will? : legal mobilization after the Arab uprising in Kuwait By Ishiguro, Hirotake
  8. New developmentalist experiments in Brazil and Egypt - a comparative study By Judit Ricz
  9. The Political Economy of A Sector in Crisis: Industrial Policy and Political Connections in the Egyptian Automotive Industry By Amirah El-Haddad; Jeremy Hodge; Nizar Manek
  10. The Political Economy of Macroeconomic Policy in Arab Resource- Rich Economies By Adeel Malik
  11. Morocco; First Review Under the Arrangement Under the Precautionary and Liquidity Line-Press Release; Staff Report; and Statement by the Executive Director for Morocco By International Monetary Fund
  12. Information and Communication Technologies and Employment Generation in Turkish Manufacturing Industry By Yilmaz Kiliçaslan; Ünal Töngür
  13. Minorities, Human Capital and Long-Run Development: Persistence of Armenian and Greek Influence in Turkey By Eren Arbatli; Leonardo Gokmen Gunes
  14. Pyramid Capitalism: Cronyism, Regulation, and Firm Productivity in Egypt By Ishac Diwan; Philip Keefer; Marc Schiffbauer
  15. Do macroeconomic variables affect stock–sukuk correlation in the regional markets? evidence from the GCC countries based on DOLS and FM-OLS By Abdi, Aisha Aden; Masih, Mansur
  16. Monetary Policy and Economic Performance in Resource Dependent Economies By Raimundo Soto; Bassem Kamar
  17. The Effect of Public Sector on Private Jobs: Evidence From the Occupied West Bank By Belal Fallah

  1. By: Ray Bush (IPC-IG)
    Abstract: "The United Nations International Year of Family Farming 2014 came at an important time for the region of the Near East and North Africa (NENA).1 This is because the political turmoil and uprisings that have structured politics and social policy in the region since 2010 (and as we will also see, from before this year too) demanded 'bread, freedom, social justice' (Aish, horreya, 'adala igtema'yyia). This slogan of protesters was heard in varied forms across the region. While most attention focused on urban rebellions in Tunisia, Egypt and Libya, where Western military intervention accelerated the removal from power of Muammar al-Gaddafi and the subsequent continued chaos, rural dissent and protest was also present across the region. Protests by small farmers across NENA had been very evident since the food price hikes of 2008 that had intensified rural malnutrition, poverty and inequality (Bush 2010). But the causes of protest had been long in the making and can be traced back to the onset of economic liberalisation in the mid-1980s, if not earlier. NENA is the world's largest food importer, relying on world markets for more than 50 per cent of its food. Price rises, particularly for wheat and rice, have given a stronger rationale to the strategic importance of boosting local production. The need to reduce the impact of the vagaries of volatile international markets for grain is?rhetorically at least?central to all countries in the region. Yet the strategy to reduce that dependence is shaped by intense local and international political pressures. The largely non-food-producing countries of the Gulf Cooperation Council (GCC) have intensified their search for land to purchase outside their national boundaries, while others, such as Egypt, have suggested the need to reinvigorate historical practices of land reclamation. All countries in the region are intent on increasing incentives to agribusiness investors". (?)
    Keywords: Family farming, Near East, North Africa
    Date: 2016–12
  2. By: Ibrahim Elbadawi; Mohamed Goaied (IHEC Carthage); Moez Ben Tahar
    Abstract: This paper contributes to the literature on the interdependence between fiscal and monetary policies in resource-dependent economies. In the context of this general theme we analyze the fiscal foundation of the choice of monetary regimes and the extent of pro-cyclicality of fiscal policy during the post mid-1990s oil boom in the relatively under-research oil-dependent Arab economies. We find preliminary evidence on the existence of a threshold effect for oil rents per capita, below which countries tend to be subject to fiscal dominance and pro-cyclical fiscal policy. This might explain the country experiences of low rents per capita and relatively populous Sudan and Yemen, compared to the GCC member countries of Oman, Saudi Arabia, the UAE as well as Algeria. The latter managed to sustain credible de facto pegged exchange rate regimes and convertible currencies (for the GCC) or graduate to flexible regime (for Algeria). Instead, the former had to abandon their pegged regimes as a result of their unsuccessful exchange rate-based stabilization programs. However, the contrast with resource-dependent Chile and Norway suggests that for the Arab oil economies to accommodate future oil busts they need to establish explicit fiscal rules and high technical capabilities for conducting monetary policy.
    Date: 2017–06–07
  3. By: Hassan Aly (Nile University); Yousef Daoud; Amr Ragab; Ayhab Saad
    Abstract: The Middle East region has suffered from major unemployment problems that constituted a chief determinant for the Arab Spring. Even during its best economic years, “jobless growth” was an issue. Thus, creating employment, in the private sector, is always on the top priority of all governments in the region. However, the success of increasing employment in the private sector requires an understanding of the factors and conditions necessary for private firms to create jobs. This paper tries to tackle this issue by shedding lights on some of determinants of job growth within firms across the region. This study is one of few that used firm-level data from the World Enterprise Surveys (WES), conducted by the World Bank, to analyze the labor market demand in the MENA region. As such, the study applies a two-part strategy: 1) a detailed statistical analysis of characteristics of each firm group, and 2) an econometric estimation using multinomial logit regressions to determine the significant drivers of job growth in each group. We then apply the appropriate robustness checks. One of the major study result indicates that governments would benefit from focusing on supporting new and young firms that are medium to large-sized with existing investments in R&D. The results, also, indicates that investment in R&D or NM is positively related to job creation. Finally, the study encourages new research of more factors that may be contributing to job creation such as labor market regulations; political activeness; access to foreign markets; practice of social responsibility and political corruption.
    Date: 2017–07–13
  4. By: May Gadallah (Cairo University); Rania Roushdy; Maia Sieverding
    Abstract: Change in gender role attitudes is a neglected dimension of research on the transition to adulthood in the Middle East and North Africa that has broad implications for young people’s outcomes, as well as attitudinal change in the region over time. Using a life course framework, we examine the reciprocal relationship between attitudes formation and two key transitions in young people’s lives: the transition to marriage and parenthood, and young women’s transition to labor force participation. In order to address the simultaneity of attitudes formation and transitions, we exploit the panel dimension of the Survey of Young People in Egypt 2009 and 2014, estimating the impact of attitudes in 2009 on the likelihood of making transitions between 2009 and 2014, then the impact of those transitions on attitudes in 2014. We find that young women with more egalitarian attitudes are more likely to enter the labor market but, contrary to most international literature, entering the labor market does not have a corresponding liberalizing effect on women’s attitudes. Rather, entering the labor force leads to more conservative attitudes regarding the gender dynamics of household decision-making. This may reflect the challenges women face in balancing work and family, and suggests that women may compensate for working outside the home – which may be perceived as having a negative effect on their families – by developing more conservative attitudes regarding household dynamics. As in other contexts, the transition to marriage and parenthood is associated with increasing conservatism in young people’s attitudes.
    Date: 2017–07–20
  5. By: Seven Ağır (Department of Economics, Middle East Technical University, Ankara, Turkey); Cihan Artunç (Department of Economics, University of Arizona, Tucson, Arizona, USA)
    Abstract: In 1942, the Republic of Turkey promulgated a controversial tax on personal wealth to finance mobilization of the army and curb inflation. The extraordinary tax was arbitrarily assessed and the burden fell disproportionately on non-Muslim minorities. The precise transformative effect of the tax on Turkey’s commercial life is not well understood. This article assembles a new dataset of firms operating in Istanbul to show the tax led to a dramatic rise on the liquidation of enterprises with non-Muslim ownership but no effect on Muslims. At the same time, the tax caused a sharp decline in the formation of new non-Muslim firms and a commensurate increase in the number of Muslim firms. The results show that the Wealth Tax forced the dissolution of otherwise productive, older firms and contributed to the further nationalization of the economy.
    Keywords: Turkish economic history, wealth tax, firm survival
    JEL: N84 N85 O1
    Date: 2017–06
  6. By: Leila Baghdadi (World Trade Organization Chair Holder, Université de Tunis); Sonia Ben Kheder; Hassen Arouri
    Abstract: The main purpose of this paper is to examine the offshore regime in Tunisia and to assess the overall effects of this export promoting strategy for the years 2002-2014. Using firm-level data, we look in particular at its impact on turnover, productivity, wages, job creation, profitability and survival of firms. We compare offshore firms to onshore firms to assess if the incentives that were provided to the former have been successful. Analysis of offshore premium on samples including all firms and only exporting firms show that both categories of offshore firms have a better performance for all indicators. Generally, the important gap between the performance indicators such as turnover, productivity and wages and the very high level of profitability displayed by offshore firms, all categories considered, compared to onshore firms points out that incentives given by the Tunisian Investment Code is benefiting more firms than to the country. When considering the specific example of offshore exporting and importing firms, performance is weaker than their onshore counterparts across the board, except in the areas of gross job creation and profitability. Lower productivity of two way offshore traders suggest that these firms are low performers and that they self-select in the offshore regime in order to cover their export fixed costs. The survival analysis highlights an increased probability that offshore two-way traders will exit the market once tariffs and tax exemptions privileges end, usually after 10 years. Thus, incentives given in the Tunisian Investment Code are attracting mainly firms in lower rungs of the Global Value Chains. Instead of incentives, Tunisia should rethink its Investment Code in favor of highly added sectors that requires more complex skills and capital.
    Date: 2017–06–07
  7. By: Ishiguro, Hirotake
    Abstract: This study examines the role of the judiciary in the political process after the Arab Uprising, focusing on a Constitutional Court and its judgements in a case where the popular will was rejected via a judicial ruling. In particular, I will analyse a case of Kuwait where the Constitutional Court declared election void and ordered the dissolution of parliament, after the opposition had won a stable majority. This case conjures images of legal mobilization by the regime; however, considering the political context where the government and parliament were in a serious ongoing conflict, the constitutional rulings by the Constitutional Court can be evaluated as a mediator intended to ease the stalemate and prevent a fall into a more serious crisis concurrent with the political upheaval in other Arab countries.
    Keywords: Justice,Courts,Legal mobilization,Judicialization of politics,Democratization,Kuwait
    Date: 2017–03
  8. By: Judit Ricz (Institute of World Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences)
    Abstract: The paper investigates the state-led development experiments in Brazil and Egypt, and highlights their merits and shortcomings in the light of most recent difficulties in both countries. Using institutional and political economy approach we compare the new Brazilian development-oriented approach to its Egyptian counterpart, and also look at their results, while trying to explain the main differences between the two cases. The way how Brazil has achieved pro-poor and inclusive growth since the Millennium offers some useful lessons, but in the light of most recent events it also provides a cautionary tale for other emerging and developing countries. At the same time the lack of pro-poor stance and neglect of inclusivity helps to explain political (and economic) turmoil of recent years in Egypt. More recently both countries have turned towards a more market- (business-) oriented approach, however with different background. After 2014 the Sisi government in Egypt seemed to turn back the time and strengthened its commitment to the state-led developmentalist approach while relying mainly on old Nasserist practices and institutional ties. This Sisinomics might have been however short-lived, as the new IMF agreement (November 2016) and its prescriptions signal a new economic policy turn. In Brazil after the rather implicit neoliberal turn during the hasty economic policy (mis-)management of the Rousseff government, in 2016 the new Temer government has much more explicitly committed itself to market-oriented reforms, and with this to the aim of significantly cutting back the role of state in economy.
    Keywords: new developmentalism, Egypt, developmental state, economic policy
    JEL: O10 O53 P16 P52
    Date: 2017–05
  9. By: Amirah El-Haddad (German Development Institute); Jeremy Hodge; Nizar Manek
    Abstract: The Egyptian automotive industry developed under the country’s policy of import substitution industrialization (ISI). It mainly catered to Egypt’s small domestic market. The Open-Door Policy of the seventies opened up the sector to joint ventures and imports with further liberalization with the Economic Reform and Structural Adjustment Program (ERSAP) in the nineties. Despite some liberalization, the main features of the seventies’ import substitution policies remained in place. Both assembly and feeder industries were protected through relatively high effective rates of tariff protection and local content requirements. The sector has faced a series of setbacks since the January 2011 revolution and then again in 2015, the latter including maximum caps on dollar withdrawals and deposits imposed by the Central Bank of Egypt (CBE). The sector’s influential businessmen have developed a draft law for a series of non-tariff trade barriers to protect their assembly and manufacturing roles in the industry. Unable to compete in the global environment, if not protected these firms would turn into importers and distributors. This study documents the evolution of the sector since the Nasser era. It also discusses the interconnected network of politically connected firms and its influence over the policy making process in Egypt. The first part of the paper examines the protective environment within which the automotive sector has grown and the way it has shaped industry structure and market players. The second analyzes state-business relations and the interlinked network of power within the industry.
    Date: 2017–06–22
  10. By: Adeel Malik (University of Oxford)
    Abstract: Revisiting macroeconomic policies and outcomes of Arab resource-rich economies (RREs), this paper synthesizes the political economy considerations that underpin policy choices. The paper argues that, in the context of Arab RREs, fiscal and financial sector policies play a particularly important role in absorbing natural resource rents. Fiscal policy is highly pro-cyclical and rooted in the underlying political settlement, which is based on extensive distributional commitments. Financial systems are deep but are known for restricted financial access to vast areas of economy. Given the excessive dependence on hydrocarbon rents and the prevalence of fixed exchange rate regimes, the external constraint remains more binding. Even where monetary policy has greater room to operate, existing policy frameworks are not geared towards domestic targets, such as inflation and unemployment, and are largely determined outside the purview of macroeconomic policy. I argue that the political objective function is essential for understanding these macroeconomic arrangements. With weak productive constituencies and few institutional constraints, macroeconomic policy involves limited feedback from the private sector and upholds the interest of the sovereign. In this milieu, institutional constraints on fiscal policy are more important than central bank independence. The paper also discusses the stability implications of current macroeconomic arrangements, arguing that stability in Arab RREs is almost entirely predicated on the uninterrupted flow of oil rents rather than resilient institutional structures.
    Date: 2017–06–07
  11. By: International Monetary Fund
    Abstract: Macroeconomic vulnerabilities have declined since 2012, but growth remains sluggish and sensitive to volatile agricultural output. External imbalances are contained. The fiscal deficit declined between 2012–15, but the fiscal and external year-end objectives were missed in 2016. Following a protracted political transition, which led to a delay in the completion of this review, the new government has now confirmed its commitment to resume fiscal adjustment and meet key program objectives, including bringing public debt to about 60 percent of GDP by 2020. The outlook is subject to elevated risks, including fragile recovery in the euro area and geopolitical risks in the region. On the domestic side, reducing unemployment rates, and achieving higher and more inclusive growth remain key challenges.
    Date: 2017–06–07
  12. By: Yilmaz Kiliçaslan (Anadolu University); Ünal Töngür
    Abstract: This study aims to examine the impact of the use of Information and Communication Technologies (ICT) on employment generation in the Turkish manufacturing industry. This study is said to be the first attempt in exploring the impact of ICT on employment generation in Turkish manufacturing industry at the firm level. The analysis is based on firm level data obtained from Turkish Statistical Institute (TurkStat) and covers the period from 2003 to 2013. The data used in the analysis includes all firms employing 20 or more employees in Turkish manufacturing industry. Our findings based on system GMM estimations show that ICT has employment-enhancing effects in Turkish manufacturing. Moreover, our results provide the evidence that tangible ICT capital has stronger employment generation impact than that of intangible ICT capital in medium-tech and low-tech industries.
    Date: 2017–07–13
  13. By: Eren Arbatli (Faculty of Economic Sciences, NRU); Leonardo Gokmen Gunes (New Economic School, Moscow)
    Abstract: We study the long-term economic legacy of highly-skilled minorities a century after their wholesale expulsion. Using mass expulsions of Armenian and Greek communities of the Ottoman Empire in the early 20th century as a unique natural experiment of history, we show that districts with greater presence of Armenian and Greek minorities at the end of the 19th century are systematically more densely populated, more urbanized, and more developed today. Results are robust to accounting for an extensive set of geographical and historical factors of development and minority settlement patterns. Matching type estimators, instrumental variable regressions, and a sub-province level case study corroborate our findings. Importantly, we provide evidence on the channels of persistence. Armenian and Greek contribution to long-run development is largely mediated by their legacy on local human capital accumulation. In comparison, the mediating effect of minority asset transfer on development appears less important.
    Keywords: human capital, economic development, expulsion, minorities, ethnicity, Armenians, Greeks, persistence. JEL Classification: O100, O430, P480, N400, Z120.
  14. By: Ishac Diwan; Philip Keefer; Marc Schiffbauer
    Abstract: Using a large, original database of 385 politically connected firms under the Mubarak regime in Egypt, we document for the first time the negative impact of cronyism on economic growth. In the early 2000s, a policy shift in Egypt led to the expansion of crony activities into new, previously unconnected sectors. 4-digit sectors that experienced crony entry between 1996 and 2006 experienced lower aggregate employment growth during the period than those that did not. A wide array of supporting evidence indicates that this effect was causal, reflecting the mechanisms described in Aghion et al. (2001), and not due to selection. Crony entry skewed the distribution of employment toward smaller, less productive firms; crony firms did not enter into sectors that would have also grown more slowly even in the absence of crony entry; and they enjoyed multiple regulatory and fiscal privileges that reduced competition and investments by non-crony firms, including trade protection, energy subsidies, access to land, and favorable regulatory enforcement. Moreover, energy subsidies and trade protection account for the higher profits of politically connected firms.
    Keywords: Firm performance, Patronage, Productivity Growth, Industrial Productivity, Productivity Level, Corruption, Economic Growth
    JEL: D72 D24 O47
    Date: 2016–10
  15. By: Abdi, Aisha Aden; Masih, Mansur
    Abstract: It is so important for the investors, academicians and portfolio managers to know the co-movement and dynamic correlations between the Shariah compliant stock and sukuk, as well as the role they play in asset allocation and risk diversification and also, to identify the factors that affect the correlation between these assets. In the literature, the macroeconomic factors such as inflation and interest rate have great effects on the stock-sukuk correlation. In this paper, we investigate the correlation between sukuk and sharia-compliant stocks in GCC countries, with concentration on the macroeconomic factors that affect stock-sukuk co-movement. MGARCH dynamic conditional correlation (DCC) is estimated under Student-t distribution to get the required correlation and then we applied cointegration panel techniques such as DOLS and FMOLS for the estimation analysis. We found that we can reject the null hypothesis of cointegration which says there is no effect of the macroeconomic variables on the stock and sukuk correlation. The industrial production and interest rate have effects on the stock and sukuk correlation, however we found that the CPI doesn't have any effect on the stock and sukuk correlation. The policy makers should consider the correlation and volatility of the Islamic assets, and they should take into account the factors that affect the stock and sukuk correlation in GCC.
    Keywords: Macro-economic determinants of stock-sukuk correlation, GCC, DOLS, FM-OLS
    JEL: C58 E44 G15
    Date: 2017–06–15
  16. By: Raimundo Soto (Catholic University of Chile); Bassem Kamar
    Abstract: The aim of this paper is to explore and quantify the role of monetary policy on economic performance in resource-based economies, with a particular focus on Middle East economies. We consider two dimensions of performance: long-run economic growth and price instability (inflation). At the international level, there is mixed evidence regarding the long-run growth record of resource-abundant economies. In some countries, natural resources have turned into a curse of protracted inefficiency, low economic growth and perpetual instability. In other economies, natural resources have played an important role in fostering stability and sustained economic growth. Furthermore, resource rich economies tend to suffer from higher and more unstable levels of price inflation; nevertheless, this malaise is less pronounced in oil exporters. A crucial component in our study is to assess the role of exchange rate regimes and their interplay with monetary and fiscal policies.
    Date: 2017–07–20
  17. By: Belal Fallah (Palestine Polytechnic University)
    Abstract: This paper estimates the short run effect of creating more public jobs on private employment in the occupied West Bank. Unlike most cited research, the results provide evidence that favors crowd in effect both at the aggregate employment level and across sectors. A main contribution of the paper is to empirically explore the underlying mechanisms that drive the results. They include increases in local demand as well as invariant increases in private wages. It turns out that increases in local labor force size is a driving factor for the latter channel. Interestingly, the increase in labor force participation exceeds the increase in public and private employment, leading to an increase in the number of unemployed. The paper also explores other mechanisms of the crowd in effect, including lack of public wage premium, lack of government capacity to absorb excess labor supply, and international cash grants.
    Date: 2017–07–13

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