nep-ara New Economics Papers
on MENA - Middle East and North Africa
Issue of 2020‒04‒13
seventeen papers chosen by
Paul Makdissi
Université d’Ottawa

  1. Cyclical Output, Cyclical Unemployment, and augmented Okun's Law in MENA zone By NEIFAR, MALIKA
  2. Innovation policies and values of females from the Gulf: a qualitative study By Arnaud Lacheret
  3. The Impact of Fiscal Deficit on Economic Growth: Using the Bounds Test Approach in The Case of Morocco. By Gyasi, Genevieve
  4. Financial Inclusion and Economic Growth: The Role of Governance in Selected MENA Countries By Emara, Noha; El Said, Ayah
  5. Complexity of Electricity Markets and their Regulation: Insights from the Turkish Experience. By Oguz, Fuat
  6. COVID-19 and the Egyptian economy: Estimating the impacts of expected reductions in tourism, Suez Canal revenues, and remittances By Breisinger, Clemens; Abdelatif, Abla; Raouf, Mariam; Wiebelt, Manfred
  7. The impact of Israeli Geopolitical Risks on the Lebanese Financial Market: A Destabilizer Multiplier By Mansour-Ichrakieh, Layal
  8. Financial Inclusion and Extreme Poverty in the MENA Region: A Gap Analysis Approach By Emara, Noha; Moheildin, Mahmoud
  9. Forecasting Models for Daily Natural Gas Consumption Considering Periodic Variations and Demand Segregation By Ergun Yukseltan; Ahmet Yucekaya; Ayse Humeyra Bilge; Esra Agca Aktunc
  10. Fiscal Reform -- Aid or Hindrance: A Computable General Equilibrium (CGE) Analysis for Saudi Arabia By Elizabeth L. Roos; Philip D. Adams
  11. IFAD RESEARCH SERIES 60 Investing in rural youth in the Near East, North Africa, Europe and Central Asia By Kabbani, Nader
  12. Loan loss provisions under regulatory pressure: public versus private banks in Tunisia By FENDRI ZOUARI, Nawel; NEIFAR, MALIKA
  13. Stock Market Volatility Analysis: A Case Study of TUNindex By NEIFAR, MALIKA
  14. Is the elimination of food subsidies the right policy to address Lebanon’s public finance crisis? By Makdissi, Paul; Seif Edine, Mohamad
  15. Green Growth Pathways for Saudi Arabia By KAPSARC, King Abdullah Petroleum Studies and Research Center
  16. Modeling Sectoral Employment in Saudi Arabia By Fakhri Hasanov; Jeyhun Mikayilov; Moayad H. Al-Rassasi; Mohammed Al-Abdullah; Fred Joutz; Muhammad Javid
  17. Kuwait; 2020 Article IV Consultation-Press Release; Staff Report; and Staff Supplement By International Monetary Fund

    Abstract: In this paper we investigate the relationship between economic growth and unemployment in MENA zone (six Arab countries: Tunisia, Egypt, Morocco, Lebanon, Jordan, and Oman) through the implementation of Okun’s Law using quarterly dataset covering the time period 2000 :1- 2014 :4. Static and Dynamic linear models are used to test the linkage between cyclical unemployment and cyclical growth rate. The empirical results from all these models do not indicate robust evidence but it confirm an inverse linkage between unemployment rate and economic growth, as the Okun’s Law suggests (except for Oman). Initially, the static linear model, the static asymmetric model, and the dynamic linear models (ARDL) fail to explain the long run tradeoff between unemployment and output due to severe model misspecifications. Most of these results are in line with previous studies ( (Moosa I. A., 2008), (Kreishan, 2011), (Andari & Bouaziz, 2015)), and (Al-hosban, 2017). In an NARDL gap specification, the Okun’s coefficients are the asymmetric long run parameters. Okun’s coefficients are statistically significant, which means that output growth can be translated into employment gains. Absolute effect of an economic contraction is significantly larger than that of an expansion in Tunisia, Egypt, Morocco, and Libanon. The opposite is true for Jordan and Oman. An economic upturn of 3.37%, 2.98%, and 2.5% respectively in Tunisia, Morocco, and Egypt reduces unemployment by 1%, while the downturn of 5.03%, 2.43% (and about 12%) respectively in Tunisia, Morocco (and Lebanon and Jordan) achieves the opposite. Empirical finding provides then an additional proof that Okun’s law could exist in a developing countries such as Tunisia, Egypt, Morocco, Lebanon, and Jordan.
    Keywords: MENA zone, Okun’s Law, Gap model, Asymmetric Cointegrating Relationships, Asymmetric Dynamic Multipliers, ARDL ECM-based Estimation and Tests, Nonlinear Unemployment-Output Relationship
    JEL: C32 E24 E32 J64
    Date: 2020–03–05
  2. By: Arnaud Lacheret (Arabian Gulf University)
    Abstract: The Gulf region, which used to be considered as a land of conservatism and oil dependent economy, has decided to launch large and wide policy reforms during the past years. The most visible parts of those reforms are obviously the various national strategic plans drafted and implemented in order to modernize those countries and allow them to achieve sustainability in a post oil era. Most of those plans rely on robust consulting analysis, conducted by the best specialists in the world. As an example, the most relevant plan, Saudi Vision 2030, has been prepared in collaboration with Mac Kinsey consultants. Such plan makes the best of a lots of statistics encompassing both highly granular, and precise economic data and wide range surveys and draws from them a set of ambitious conclusions. Among those conclusions, the empowerment of national females appears as a priority for all the Gulf countries. Measures and regulations have purposely been taken following the finalisation of the plan and the most spectacular changes have occurred in Saudi and have been promoted in the international press. This momentum is rather unique in the world, especially in terms of speed of the change that could be compared to the Atatürk reforms in Turkey in the 1920s. Ignoring those national strong efforts, analyses and research papers recently published about the Gulf region do acknowledge neither the outcomes nor the successes achieved so far but rather stay over focused on religious and cultural issues. Most of western researchers observe change from afar or by doing short travels in those countries. They are therefore facing real challenges to perceive the materiality of change, ending up arguing that the main issue is the rigid and conservative mindset that prevent and curb the pace of change. As a scholar and MBA program manager based in the Gulf since 2017 in one of the only regional universities in the world, I decided to launch a long range qualitative research on one of the most important and claimed stake of the future of the GCC countries: the empowerment of women. This genesis of this research lies in the identification of a gap in the existing scientific papers between the global economic surveys and statistics used by the consultants assisting the local Government in the implementation of the reforms, and the papers dealing with women in the Arabian world. The latter studies are mainly based on two very different methodologies: qualitative and quantitative research in management science and ethnologic and anthropologic science in "feminist" studies. Both of them, despite their huge differences are really focused on religious aspects, claiming that they are shaping the values of local GCC women. During my first month embedded in this 100% Arabian university, my first impressions and observations were quite different, and I didn't find out that strong impact of religion in people's behaviour. On the contrary, although Islam is obviously very important in Arab lives, my first conversations and exchanges with my students and colleagues lead me to think that the previous studies were biased and too much religion oriented.
    Date: 2020–10–01
  3. By: Gyasi, Genevieve
    Abstract: The study employed the bounds test (ARDL) approach to cointegration to examine the long run and short run relationships between macroeconomic variables, fiscal deficit and economic growth in Morocco as the case study. The results show that fiscal deficit affect economic growth in the Moroccan economy in the long run as in the equilibrium correction was found to be significantly quick.
    Keywords: fiscal deficit economic growth
    JEL: E62 E66
    Date: 2020–03–04
  4. By: Emara, Noha; El Said, Ayah
    Abstract: Financial inclusion, whether in terms of adoption or usage, is one of the main, but challenging priorities in the MENA region. The paper empirically investigates the relationship between financial inclusion and economic growth in selected MENA countries. A system GMM dynamic panel model technique is employed on yearly data for the period 1965-2016, using a number of measures of financial inclusion covering the households and the firms access to finance. Particularly, the study uses indicators such as the number of bank accounts (per 1000 adult population), bank accounts for corporates/enterprises, and the number of bank branches and ATMS (per 100,000 people), percentage of firms using banks to finance investments, the percentage of firms using bank loans to finance working capital, and the percentage of firms using banks to finance investments. The results of the study indicate that financial inclusion positively impacts GDP per capita growth in the selected countries. Financial inclusion measured by the household’s financial access index has a positive and statistically significant impact on economic growth in the MENA region, but requires supervisory and regulatory regimes with backing of the rule of law, judicial independence, contract enforcement, control of corruption, and political stability. The effect firms’ access to finance is only significant in the presence of strong institutions. The results were insignificant for the general financial inclusion measure.
    Keywords: Financial Inclusion; Governance; Economic Growth; MENA; Financial Development
    JEL: C23 G21 O43
    Date: 2019–10–17
  5. By: Oguz, Fuat
    Abstract: Electricity pricing models were designed at a time when technology was relatively stable. The natural monopoly model was based on a uni-directional pricing mechanism. Electricity was generated at one end and transferred to the other end. Pollution was not a big issue. There were no solar panels over the houses of consumers. Many contemporary issues of the ecosystem of electricity were not relevant. The tariff model was meant to be a simple one, even though it included many variables. It was not a complex system. This paper argues that a model that was designed within a simple system cannot efficiently adapt to a multidimensional and interdependent system. The use of the old regulatory model within a complex system creates rents and inefficiencies. This paper evaluates the electricity tariff model in Turkey under the light of recent technological advances and changes in the structure of electricity markets. The changes in the institutional environment of the market bring electricity markets closer to a complex system. We argue that the tariff mechanism should also be revised accordingly. We use the Turkish electricity industry as an example, as it reflects the issues in a developing country.
    Keywords: Complexity; electricity distribution; electricity tariffs; regulation; renewables; Turkish electricity industry
    JEL: K2 L9 L94
    Date: 2020–03
  6. By: Breisinger, Clemens; Abdelatif, Abla; Raouf, Mariam; Wiebelt, Manfred
    Abstract: Egypt’s recent economic success will almost certainly be interrupted by the COVID-19 pandemic. We examine the likely impact on the Egyptian economy of a significant reduction in tourism, payments received from the Suez Canal, and remittances from Egyptians working abroad because of the slowdown in the global economy due to the COVID-19 virus. Our results suggest that COVID-19 could reduce national GDP by between 0.7 and 0.8 percent (EGP 36 to 41 billion) for each month that the global crisis continues. Similarly, household consumption and expenditure is estimated to decline on average by between EGP 153 and EGP 180 per person per month, which is between 9.0 and 10.6 percent of average household income. The cumulative loss in GDP from these three external shocks alone could amount to between 2.1 and 4.8 percent of annual GDP in 2020 if the crisis lasts for 3 to 6 months. While the country’s focus currently is rightly on fighting the health crisis and mitigating its immediate impacts, planning on how to re-open the economy should also start now.
    Keywords: EGYPT, ARAB COUNTRIES, MIDDLE EAST, SOUTHWESTERN ASIA, ASIA, Coronavirus, tourism, Suez Canal, pandemics, remittances, household income, economic situation, economic crises, Covid-19
    Date: 2020
  7. By: Mansour-Ichrakieh, Layal
    Abstract: This paper is the first econometric study that investigates empirically the impact of Israeli Geopolitical Risks on the Lebanese financial market. We run Vector Autoregression model, Granger causality tests, generalized impulse response functions and Variance Decomposition Analysis, to assess the impacts of Israeli Geopolitical Risks (GPRs) on the Lebanese financial stability, on the foreign reserves’ depletion and the economic activity. To measure the Lebanese financial stability, we consider the Lebanese financial stress index that was initially calculated by Ishrakieh et al. (2019, 2020). The geopolitical risks index is measured by taking the continuous variable calculated on a monthly basis to best suit time series analyses, calculated by Dario Caldara & Matteo Iacoviello in 2018. This paper illustrates many novelties such as incorporating the Lebanese financial stress index for the first time in an empirical-econometric study. Also, the adequate level of foreign reserves (also known as international reserves) is taken by calculating the ratio of international reserves to foreign currency deposits as a more appropriate measurement for a dollarized country. Similarly, to measure the economic activity and the business cycle on a monthly basis, we consider the employment in private sector as a better proxy than traditional variables considered in previous studies. Results show that if any financial crisis occurs in Lebanon, an economic recession is more likely to follow within six months. Also, we find that foreign reserves ‘shocks may cause a financial crisis thus economic recession. Finally, we conclude that Israeli GPRs are somehow a destabilizer multiplier: they trigger financial instability and economic recession in Lebanon. They cause international reserves’ depletion, threaten the Lebanese financial market and provoke economic recession. To sustain financial market stability, policy makers should not only accumulate sufficient level of foreign reserves, but also, they have to avoid Israeli-Hezbollah tensions.
    Keywords: Financial crises, geopolitical risks, economic activity, Lebanon, Israel, VAR, Granger Causality.
    JEL: C32 F51 G01
    Date: 2020–03–16
  8. By: Emara, Noha; Moheildin, Mahmoud
    Abstract: Eradicating extreme poverty remains one of the most significant and challenging Sustainable Development Goals (SDGs) in the Middle East and North African (MENA) region. The latest World Bank statistics from 2018 show that extreme poverty in MENA increased from 2.6% to 5% between 2013 and 2015. MENA ranks third among developing regions for extreme poverty, and fell short of halving extreme poverty by 2015 – the target established by the United Nations’ Millennium Development Goals, the precursor to the SDGs. Using system General Method of Moments dynamic panel estimation methodology on annual data for 11 MENA countries and 23 emerging markets (EMs) over the period 1990 – 2017, this study begins by estimating the impact of financial inclusion – using measures of access and usage – on the eradication of extreme poverty by 2030, the first goal of the SDGs. The results of the study indicate that, on one hand, financial access measures have a positive, statistically significant impact on reducing extreme poverty for the full sample as well as the MENA region. On the other hand, financial usage measures are only statistically significant in reducing extreme poverty for the full sample, but not for the MENA region. The second part of the study employs a gap analysis against four poverty targets—0%, 1.5%, 3%, and 5%—and shows that no MENA country and few EM countries will be able to close the extreme poverty gap and reach the target of 0% by 2030 by depending solely on improvements in financial access. These targets are based on the two benchmarks set by the World Bank and the UN, with intermediaries to capture error and give a fuller picture of what is possible. However, if improvements in financial inclusion alone can bring every EM and MENA country except Djibouti and Romania to bring the most accessible target of reducing global extreme poverty to no more than 5% by 2030. Policy considerations can be directed towards developing and promoting the infrastructure needed for the widespread delivery and usage of financial services, especially for the MENA and EM countries lagging behind the extreme poverty target. Special attention should be paid to the support of digital financial inclusion for its ability to help individuals cope with shocks without reducing consumption. Delivery and usage of financial technology is predicted to magnify the impact of financial inclusion on poverty reduction both directly – as shown in this paper – and indirectly – through channels related to other SDGs. Additionally, governments in the MENA region must take data quality and availability more seriously if they expect to reverse the acceleration of extreme poverty in the digital age.
    Keywords: Financial Inclusion; Extreme Poverty; MENA Region SDGs; Gap Approach
    JEL: C23 G21 O43
    Date: 2020–03–15
  9. By: Ergun Yukseltan; Ahmet Yucekaya; Ayse Humeyra Bilge; Esra Agca Aktunc
    Abstract: Due to expensive infrastructure and the difficulties in storage, supply conditions of natural gas are different from those of other traditional energy sources like petroleum or coal. To overcome these challenges, supplier countries require take-or-pay agreements for requested natural gas quantities. These contracts have many pre-clauses; if they are not met due to low/high consumption or other external factors, buyers must completely fulfill them. A similar contract is then imposed on distributors and wholesale consumers. It is thus important for all parties to forecast their daily, monthly, and annual natural gas demand to minimize their risk. In this paper, a model consisting of a modulated expansion in Fourier series, supplemented by deviations from comfortable temperatures as a regressor is proposed for the forecast of monthly and weekly consumption over a one-year horizon. This model is supplemented by a day-ahead feedback mechanism for the forecast of daily consumption. The method is applied to the study of natural gas consumption for major residential areas in Turkey, on a yearly, monthly, weekly, and daily basis. It is shown that residential heating dominates winter consumption and masks all other variations. On the other hand, weekend and holiday effects are visible in summer consumption and provide an estimate for residential and industrial use. The advantage of the proposed method is the capability of long term projections and to outperform time series methods.
    Date: 2020–02
  10. By: Elizabeth L. Roos; Philip D. Adams
    Abstract: The oil price fell from around $US110 per barrel in 2014 to less than $US50 per barrel at the start of 2017. This put enormous pressure on government budgets within the Gulf Cooperation Council (GCC) region, especially the budgets of oil exporting countries. The focus of GCC economic policies quickly shifted to fiscal reform. In this paper we use a dynamic CGE model to investigate the economic impact of introducing a 5 per cent Value Added Tax (VAT) and a tax on business profit, with specific reference to the Kingdom of Saudi Arabia (KSA). Our study shows that although the introduction of new taxes improves government tax revenue, markets are distorted lowering economic efficiency and production due to a tax. In all simulations, real GDP, real investment and capital stock falls in the long-run. This highlights the importance of (1) understanding the potential harm caused to economic efficiency and production due to taxes, and (2) fiscal reform includes both government expenditure reform and identifying non-oil revenue sources. This allows for the design of an optimal tax system that meets all future requirements for each of the individual Gulf States.
    Keywords: Computable General Equilibrium (CGE) models Saudi Arabia Fiscal reform
    JEL: C68 D58 E62 O53
    Date: 2019–05
  11. By: Kabbani, Nader
    Abstract: Countries of the Near East, North Africa, Europe and Central Asia region face a myriad of social, economic and political challenges that have stalled their structural and rural transformation processes. The region has the highest youth unemployment rates in the world. Weak education systems are failing to provide youth, especially in rural areas, with the skills they need to compete in a global economy. The resulting high rates of joblessness, unemployment and informal work have encouraged rural youth to migrate to urban areas and abroad in search of better opportunities. This study reviews the opportunities and challenges facing rural youth in the region and suggests a number of programmes and policy priorities that governments can take into consideration.
    Keywords: Community/Rural/Urban Development
    Date: 2019
    Abstract: We study the effect of capital regulation on bank’s loan loss provisions. Using hand collected data on 13 Tunisian banks during the period 2006-2016, we show that Tunisian banks discretionnary decrease loan loss provisions under regulatory pressure. When studying private banks and public banks, we find that they don’t respond to the same capital regulatory constraints. Private banks discretionary reduce provisions in reaction to an increase in capital requirements when they are under pressure to meet regulatory eligible capital. However, the provisioning behavior of public banks is influenced by its regulatory capital position: they take lower loan loss provisions to enhance capital positions through the year and higher levels of loans loss provisions when coming into the year with stronger capital positions. Our analyses indicate that Tunisian banks use discretionary capital management to appear to be better capitalized but their overall ability to absorb loan losses is reduced. Regulators must be aware of this association and are requested to further strengthen regulation in loan classification and provisioning.
    Keywords: Tunisian banks, capital ratios, eligible capital, capital management, loan loss provisions, capital regulatory pressure, discretionary loan loss provisions, Panel Data
    JEL: C3 C33 G28 M41
    Date: 2020–03–12
    Abstract: Volatility is directly associated with risks and returns. This study aims to examine the volatility characteristics on Tunisian stock market index (5 days a weak TUNindex) that include clustering volatility, leptokurtosis, and leverage effect. The first objective is then to use the GARCH type models to estimate volatility of the daily returns series, consisting of 2191 observations from 01/02/2011 to 19/11/2019, with no significant weekdays effect. We use both symmetric and asymmetric models. The main findings suggest that the symmetric GARCHM and asymmetric TGARCH /APGARCH models can capture characteristics of TUNindex whereas EGARCH reveals no significant support for leverage effect existence. Looking at news impact curves, GJR model appears to be relatively better than other models. However, the volatility of stock returns is more affected by the past volatility than the related news from the previous period. The second objective is to use GARCHM- X S models to capture the effect of macro-economic instability via exchange rate growth and exchange rate volatility. For policy, GARCHM-XS2 turned to be the best model. The macroeconomic environment should be favourable to ensure growth in the stock market. Policies to reduce volatility in the the economy (more stable exchange rate) are a necessity for stock market.
    Keywords: Tunisia, Stock Market, Tunindex, Volatility, Symmetric and Asymmetric GARCH Models, GARCH, TGARCH, GARCH-M, EGARCH, GARCHM-XS, Leverage Effect., Risk Premium, Stability.
    JEL: C22 D8 D81 D82 E44 E47 O16
    Date: 2020–03–17
  14. By: Makdissi, Paul; Seif Edine, Mohamad
    Abstract: In this paper, we use a positional dominance approach to assess the desirability of eliminating food subsidies in Lebanon. The analysis is based on aggregate information from the 2004/2005 National Survey of Households Living Conditions. We use this aggregate information on expenditure patterns to reconstruct rough estimates of s-concentration curves and efficiency-cost ratio sets. Evidences suggest that the Lebanese government should probably find other avenues to reduce the fiscal deficit.
    Keywords: Taxation, inequality, Lebanon
    JEL: H23 I31
    Date: 2020–03–01
  15. By: KAPSARC, King Abdullah Petroleum Studies and Research Center (King Abdullah Petroleum Studies and Research Center)
    Abstract: Green growth emphasizes that positive environmental outcomes can be consistent with economic prosperity and that greater social wellbeing can be achieved through ‘less use, more value’ policies.
    Keywords: Carbon Dioxide Emissions, Circular Carbon Economy, Climate Change, Diversification, Economic Growth, Energy Efficiency, Energy Price Reform, Renewable Energy, Sustainable Development
    Date: 2019–03–09
  16. By: Fakhri Hasanov; Jeyhun Mikayilov; Moayad H. Al-Rassasi; Mohammed Al-Abdullah; Fred Joutz; Muhammad Javid (King Abdullah Petroleum Studies and Research Center)
    Abstract: Achieving the desired level of employment is central to macroeconomic policy. Regulators should have a better understanding of employment dynamics in order to design appropriate policies and test their impact. Healthy employment levels not only benefit household income and the production factor of firms, but also help maintain sustainable economic growth and reduce poverty. Employment is a central element in the concept of inclusive growth (UN 2006; Bhalla 2007). Therefore, the dynamics of employment determinants have been the subject of considerable research to date.
    Keywords: Employment, Household income, Economic growth
    Date: 2020–03–09
  17. By: International Monetary Fund
    Abstract: This Staff Report was prepared by a staff team of the IMF for the Executive Board’s consideration on March 24. The staff report reflects discussions with the Kuwaiti authorities in January 2020 and is based on the information available as of March 2. It focuses on Kuwait’s near and medium-term challenges and policy priorities and was prepared before COVID-19 became a global pandemic and resulted in unprecedented strains in global trade, commodity and financial markets. It, therefore, does not reflect the implications of these developments and related policy priorities. The Supplementary Information is based on the information available as of March 12. The outbreak has greatly amplified uncertainty and downside risks around the outlook. Staff is closely monitoring the situation and will continue to work on assessing its impact and the related policy response in Kuwait and globally.
    Date: 2020–03–30

This nep-ara issue is ©2020 by Paul Makdissi. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.