Academic journal article Journal of Economics and Economic Education Research

Analysis of the Interrelatedness of the Mena Region

Academic journal article Journal of Economics and Economic Education Research

Analysis of the Interrelatedness of the Mena Region

Article excerpt

INTRODUCTION

Economic integration and harmonization of free trade among countries has been an ongoing process slowly evolving into more regional interconnectedness. Perhaps the concept of one open market throughout the world is quite optimistic at this stage of development; however, closer ties between countries located in the same regions of the world have progressed significantly in the past century and continue to evolve. (Husain, 2014)

Saturated markets in the Western world and Asia are stimulating investors in search of new opportunities and turning to emerging economies, such as the Middle East and North African Region (MENA) for new investments. (Smith, 2010) Based on World Bank's World Development Indicators of growth of output based on average annual percentage of the countries' gross domestic product, MENA's GDP growth was 0.9%, Sub-Saharan Africa's 3.2%, and South Asia's 1.4%. At the same time Europe and Central Asia's remained at 1.6% and North America's declined by 1.9%. (World Bank, 2014)

One determining factor in foreign market penetration is the diversification of risks by utilizing foreign direct investment in different regions, which can reduce costs associated with the liability of foreignness of a parent company. The existence of comovement of real output between countries located within the same geographic region can influence the interest of a potential foreign market entrant. The current paper investigates the comovement of GDP, or lack thereof, between countries in the MENA region. If there is comovement of GDP, economic, cultural, political, geographical, and legal aspects of these countries may influence this comovement. This may provide a better understanding of the cause and effect relationship that may exist and provide benefits in terms of diversification. Furthermore, risks associated with foreign investments could be significantly lowered in a country with a stable regulatory environment where the rules and regulations of doing business are clearly stated, cannot be easily changed, and obligations resulting from contract agreements and international business transactions are enforceable. (Mehrabani, Basirat, & Abdollahi, 2016)

The current study analyzes eight countries in the MENA region, more particularly three located in North Africa: Egypt, Morocco, and Tunisia, and five in the Middle East: Bahrain, Iran, Jordan, Oman, and Saudi Arabia. First, the countries' economic, political, cultural, and legal similarities and differences will be discussed. Then the comovement of GDP between each country will be analyzed.

Bahrain in 2006 was the first country in the Persian Gulf region to have signed a Free Trade Agreement with the United States, thus embarking the region on a long journey towards economic integration. Bahrain's economy is largely dependent on oil, which has led to a significant budget deficit in 2016 due to the low oil prices. The country mainly exports petroleum and petroleum products, aluminium, and textiles, while it imports crude oil, machinery, and chemicals. Saudi Arabia is its main trade partner. (Central Intelligence Agency, 2016).

Bahrain's neighboring country across the Persian Gulf, Iran, with 80% of exports comprised of petroleum and petroleum products, is significantly dependent on the one commodity. Despite its mixed-economy, state owned enterprises are the ruling standard in forms of business ventures. The 2012 economic sanctions attempting to steer Iran into a different political direction have been reduced after Iran agreed to the Joint Comprehensive Plan of Action (JCPOA) signed by the United Nation's Security Council's five permanent members and Germany in 2015. Iran's promise to curtail its nuclear program promises more economic growth due to free trade in the future. However, in order to achieve this goal and to get closer to the level of economic development of the other countries in the region, Iran must undertake various political and legal reforms to enhance the predictability of doing business. …

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