The Economics of the Middle East and North Africa (MENA)

The following sections are included:

• Dedication

• Contents

• List of Tables

• List of Acronyms and Abbreviations

It is difficult to find a single homogeneous characterization of the group of countries we refer to as the Middle East and North Africa (MENA). In order to begin a cross-country comparison, three broad summary measures are traditionally used — per capita income, standard of living, and institutional measures of democracy…

The countries that compose the MENA region are diverse in all of the basic outcome variables including size, geography, per capita GDP, natural resource endowments, economic structure, investment in human capital, role of women in the economy, role of the state in the economy and the existence of democratic institutions.

Is it possible that institutional Islamic restrictions were a major contributing factor for the fact that the Arab MENA region, in contrast to non-Arab MENA, became less developed, did not invest in human capital of its younger generation, did not honor gender equality, did not honor religious freedom, and did not honor market institutions or the elimination of State terror? These are just a few of the list of factors outlined in the post-Williamson's "Washington Consensus" that are being discussed in the development literature and especially in the UN Arab Human Development Reports (UNDP, 2002, 2003, 2004, 2005, 2009)…

Persistent differences in the standards of living across Arab MENA and between Arab and non-Arab MENA have historically been attributable to resource differences. If the large disparity in income per capita across MENA is, however, partly due to barriers to the adoption of technology and allocative inefficiencies, then we need to consider an alternative explanation. In order to explain these differences, this chapter concentrates on the contribution of the accumulation of skills and education to economic growth. This framework is based on the endogenous growth models developed by Lucas (1988) and Romer (1986 and 1990).

Most Arab countries in MENA have been growing slowly for a long time and see themselves increasingly poor relative to the rest of the world, to both advanced countries and peer countries like Israel and Cyprus within MENA. There are a whole set of reasons for this lackluster performance which have been explored in earlier chapters. Human capital occupies a central role in modern thinking about growth. The labor market is the place where human capital is created and deployed. If we are to understand growth and development within MENA, we need to understand the creation and deployment of human capital. The endogenous growth model which was discussed in Chapter 4 is the appropriate venue for a discussion of the labor market. This chapter accepts the argument that the study of the links between labor markets and growth should concentrate on a study of labor market influences on the quantity, quality and productivity of human capital. This requires an investigation of the institutions that influence the acquisition and employment of human capital and their effectiveness in enhancing growth (Aghion and Howitt, 1998; Agénor, Nabli, Yousef and Jensen, 2004; Benhabib and Spiegel, 1994; and Pecorino, 1992)…

Traditional concepts of comparative advantage stress endowments of labor, land, capital and natural resources. Following the framework in Leamer (1984) and assuming Leontief technology, we begin with the system of equations that relate factor supplies to factor demands as follows:

K and L are the amounts of two factors of production (capital and labor) available in a given country. These amounts are country-specific and are assumed to be internationally immobile. The Y's denote the quantity produced in the given country of two commodities (labeled 1 and 2). The α's are the traditional factor intensities determined by the available production technologies in each sector, and they represent the units of each factor required to produce a unit of output. Equations (6.1) and (6.2) represent a system that can be solved for outputs Y as a function of the inputs K and L and the factor intensities…

Investment in science, technology and innovation has benefited from both increased globalization and economic growth. In the 21st century, the distribution of research and development (R&D) is no longer confined predominantly to the OECD. In the past two decades, R&D activity has grown in China, Russia, India and in the MENA region (OECD, 2008). An increasing share of R&D is funded through private business, public institutions or international organizations. The importance of foreign affiliates in business R&D is growing, as is the increased importance of scientific collaboration. The output of R&D in the form of patents and scientific publishing is increasing in those countries that have adopted knowledge economy-friendly policies that encourage and support internationalization…

When the MENA region was open to international trade and to the movement of factors of production, human capital, innovation and private business, it enjoyed a long period of prosperity. That period of prosperity was a long time before the current wave of globalization. Now that the world is enjoying the fruits of globalization, Arab MENA has fallen far behind. The non-Arab MENA, represented by Cyprus, Israel and Turkey, has not suffered the same fate. While the developed and developing world has experienced trade growth rates close to double digits, Arab MENA has only managed to experience growth in trade closer to 2 to 4 percent. As much of the developing world has assumed an active role in the innovation process as well as in the global production chain, Arab MENA continues to maintain its old economic links which depend on oil and natural resource exports, tourism, and labor migration…

The main conclusion of this volume is that without accepting the principle of free trade in goods, services and factors of production, the Arab MENA countries will become more vulnerable to their own excess supply of labor and the resulting political instability. The empirical observations presented in this volume make it patently obvious that Arab MENA countries are already crowded out in manufacturing in both labor-intensive and skillintensive products because of intense competition from countries with greater comparative advantages in these areas in the non-Arab MENA, South East Asia and China. The only way to reverse these outcomes is by increasing investment in human capital and by introducing knowledge economy-friendly policies. Improvements in human capital formation and broader improvements in governance and gender equality will be essential to enable shifts to more knowledge-based activities…

The following sections are included:

• Data Appendix

• References

• Index