Determinants of Economic Success in the Middle East and North Afria

By Duncan, Felina B.; Denaux, Zulal S. | Global Journal of Business Research, September 1, 2013 | Go to article overview

Determinants of Economic Success in the Middle East and North Afria


Duncan, Felina B., Denaux, Zulal S., Global Journal of Business Research


ABSTRACT

Periodically referred to as the "cradle of civilization", an adage reflecting its past economic success and growth, the Middle East and North Africa region continues to serve as an international focal point, albeit a disappointing one in light of its economic potential. Therefore, the purpose of this study is to utilize regression analysis to reexamine the impact of initial conditions, human capital, the investment ratio, macroeconomic performance, trade openness, life expectancy, and natural resource abundance on the growth of the Middle East and North África region's real GDP per capita in light of recent events, namely the widespread civilian protests, demonstrations, and toppled dictatorships across the Arab World where high unemployment, security states, a weak private sector, volatile external revenues, and a disproportionate concentration of power in the hands of a few have been the norm for decades.

JEL: Oil, 015, C23

KEYWORDS: Economic Growth, MENA Region, Human Capital, Panel Estimation

(ProQuest: ... denotes formulae omitted.)

INTRODUCTION

Given the Middle East and North Africa (MENA) region's valuable coastal access and high levels of urbanization, the relatively unchanged economic discrepancy between the region and the highincome nations of the world from 1913 to the present is a somewhat disconcerting reality (Pamuk, 2006). In fact, the entire regional paradigm has maintained a sort of status quo over the past one hundred plus years; unearned income streams continue to supply an all pervasive state that stifles long term economic growth by engaging in patronage over production. However, this longstanding continuum, threatened by the region's young, educated, and increasingly female labor force, recently faced a sizeable crisis (Malik & Awadallah, 2011).

On December 18, 2010 a series of revolutions known as the Arab Spring Uprising began in Tunisia - where unemployment among university graduates was approaching fifty percent (Mihailovich & Sommer, 2011)- before erupting all over the MENA region and overthrowing the entrenched governmental powers in Tunisia, Egypt, Libya, and Yemen (Central Intelligence Agency, 2012). According to the World Bank (2012), GDP in several of the net oil-importing countries in the MENA region contracted by more than six percent in the first quarter of 2011 due in large part to the turmoil that followed the initial protests before returning to its previous levels by the end of 2011 ; GDP declines were less dramatic for countries not experiencing large scale protests. Similarly, for oil exporting countries that experienced ample political turmoil like Libya and Yemen, rising oil prices in 2011 did not lead to a higher economic growth (Charafeddine, 2011). Additionally, industrial production in countries that faced major protests in 2010 and subsequent political change in 2011, like Tunisia and Egypt, suffered considerably; the situation has since improved, although the development has been much more volatile in Egypt (World Bank, 2012). Finally, the Arab Spring contributed to unprecedented declines in tourism-which is an important source of income for many countries in the MENA region- and a significant loss of life (World Bank, 2012; The Economist, 2011).

The proximity of the Arab Spring -Bahrain, Jordan, and Syria continue to face ongoing protests at the time of this writing (Central Intelligence Agency, 2012) - renders an accurate empirical assessment of the effects of the uprising on the determinants of economic growth in the MENA region largely impossible. Therefore, our study will merely reassess what factors most stimulate MENA's economic growth, not attempt to quantify the economic impact of the Arab Spring. That being said, the above overview of the current economic condition of the MENA region in the wake of the Arab Spring provides a necessary backdrop for our study.

Our study most closely follows that of Makdisi, Fattah, and Limam (2005), except that we analyze the prominent determinants of MENA's economic growth over the period 1969 to 2010. …

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