Meyer Professor of Middle Eastern History, Harvard University "This volume makes several significant contributions to the growing literature on the political economy of the Middle East. Henry and Springbog manage a 'tour de force' by combining insightful theoretical analysis with intricate quantitative and qualitative details of the states and societies under examination.
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Their conclusion The breadth and depth of the analysis deserve special mention As a result, the volume marks a milestone in studying the impact of globalization on the MENA region. It will be of particular use to students of the Middle East, but also to anyone seeking a better understanding of the challenges and opportunities facing regional governments in the years and decades to come. Convert currency. Add to Basket. Book Description Cambridge University Press, Condition: New. More information about this seller Contact this seller. Book Description Cambridge Univ Pr, Condition: Brand New.
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Tunisia's annual population growth averaged 3. In the majority of countries in the region, over two-thirds of the population is under 30 years of age. Over the last 20 years, the labor force has grown in excess of population growth and is projected to grow at 3 percent per annum till The ensuing high and rising share of working age population could, under the appropriate circumstances, be seen as a demographic gift capable of contributing positively to growth rate in the region. However, this gift is not automatic because it has to be translated into employment growth and a skill mix that is demanded in the global economy.
Moreover, other policies and institutions conducive to complementary growth need to be in place to support the growing working age population. Low productivity. Another reason for the low-growth performance is the region's low or often negative growth of total factor productivity TFP , that is, the efficiency with which factors of production such as physical capital and labor are employed to generate growth. Most of the output growth in the region has occurred as a result of increases in capital and labor rather than in TFP, particularly in non-oil economies. A sustained rise in living standards is difficult if higher rates of accumulation of physical capital and labor are not accompanied by positive TFP growth, which is often seen as a prerequisite for employing the largely young labor force in the region while avoiding a real wage erosion.
The importance of TFP growth cannot be underestimated in any analysis of growth. Research shows that TFP growth accounts for about 60 percent of cross-country variations in output growth. This research also shows that the importance of TFP growth increases further if allowance is made for the contribution of human capital—job experience and level of schooling—to output growth. MENA countries with negative TFP growth rates, many of which are oil-producing countries, often tend to have relatively poor growth performance.
Limited evidence on TFP growth for selected oil-producing MENA countries in the s, according to research conducted by the staff of the IMF, is consistent with these long-run studies. Similarly, recent research on sources of TFP growth in the MENA region as well as other regions shows that to reverse the region's low and negative TFP growth, policymakers need to focus on improving governance and quality of institutions, investing in human capital, and establishing market-friendly and peaceful political environments.
Review of Globalization and the Politics of Development in the Middle East :: Middle East Quarterly
Fortunately, these are the same factors that promote investment and GDP growth, which in turn help boost employment growth. Despite its geopolitical importance, the MENA region's influence in the global economic system remains weak.
Political fragmentation, recurring conflicts, and authoritarian rule have hampered the development of democratic institutions and remain major obstacles to economic reform. As noted in the widely discussed Arab Human Development Report United Nations, , the region performs poorly in the areas of civil and political freedoms, gender equality, and, more generally, opportunities for the full development of human capabilities and knowledge.
To overcome these handicaps, modern institutions, such as freely elected legislatures and competent and independent judiciaries, and institutions that safeguard civil and human rights need to be strengthened.
The demarcation line between the public and private sectors in many MENA countries is often unclear, encouraging conflicts of interest, rent seeking i. Civil society organizations such as professional associations, the nonofficial media, and "autonomous" nongovernmental entities tend to be weak and are often co-opted by governments. While there are exceptions, transparency in government is poor and accountability remains a problem, as seen from perception-based measures of governance. Recent empirical studies, based on data from a large number of countries, show that quality of institutions and governance are significant not only for stimulating growth over time but also for explaining differences in the levels of per capita incomes and TFP among countries.
On most measures of good governance and institutions, especially voice and accountability, regulatory quality, and control of corruption, the MENA region did not fare as well as other developing and emerging economies Figure 3. Some progress, however, has been made recently though it has yet to influence perception-based measures of governance. In most countries, elections for representative legislatures are becoming more open and meaningful, and the political leadership is becoming more aware of the need for political reform.
In part, this positive development reflects the impact of the citizens' vastly expanded access to diverse sources of information as well as internal and external pressures. The authorities' response to demands for accountability, however, has been uneven and hesitant, often leading to an easing of domestic political restrictions and some improvement in economic management, but very little in the way of genuine political reform. A deepening of political reforms is widely viewed as a prerequisite for firmly rooting badly needed economic reforms.
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Recognizing the importance of transparency and good governance for high-quality growth, and in part in response to the financial crises of the late s, the international financial institutions launched a set of initiatives to address weaknesses in economic institutions around the world. A main weakness was recognized to be the extent to which countries observe certain internationally accepted standards of transparency in economic management, such as in the fiscal, statistical, and financial sectors and in creating a fair and open environment for the private sector.
A number of countries in the MENA region have voluntarily participated in these initiatives, which include the assessment of fiscal transparency in the operation of the public sector and its interface with the private sector the Islamic Republic of Iran, Pakistan, Tunisia, and Mauritania ; data transparency and integrity Jordan, Morocco, and Tunisia ; monetary and financial policy transparency Algeria, Tunisia, the United Arab Emirates, Morocco, and Oman ; and legislation on anti—money laundering and combating of terrorist financing nearly all countries in the region.
Detailed reviews of market-based standards—for example, insurance markets, corporate governance, accounting standards, insolvency and creditor rights—are on the agenda. These assessments by the IMF and the World Bank, in collaboration with the member countries, evaluate performance in each area against the generally accepted international standards and codes. The resulting reports on participating countries in the MENA region, which are available from the websites of the IMF, the World Bank, and central banks or ministries of finance of these countries, have generally shown progress in some areas.
These include, among others, recording and accounting of government's receipts and expenditures; quality of macroeconomic statistics; and financial soundness of banks and of equity and insurance markets. They have also, however, identified a number of weaknesses, including the need for creating institutions for regulatory and external oversight in the public and private sectors; public dissemination of economic statistics; and more transparent budget preparation, execution, and reporting systems. While acknowledging flaws in institutional arrangements, these reports also provide detailed diagnoses that help the authorities prioritize their institutional reform agenda and future technical assistance in these areas.
A large and inefficient public sector can impose significant costs on the economy in a number of ways, such as crowding out private sector demands for credit; high cost of revenue collection; delays in awarding licenses, permits, and contracts; arbitrary enforcement of existing regulations and laws; complex and opaque court systems with high case loads; poor quality of institutions; and poor delivery of other public goods and services for which the public sector has the main responsibility, such as the rule of law and protection of property rights.
These deficiencies adversely affect the business and investment climate and increase the cost of doing business for both domestic and foreign investors. For example, a World Bank study showed that costs of complying with official requirements to set up new businesses in the MENA region are five times as high as in East Asia and 2. Size and composition of the public sector. Although much is known about the size of the central governments within the MENA region, not much is known with any certainty about the size of the overall public sector—which includes, among others, central government, local governments, and state-owned enterprises—in a majority of countries.
It is, though, believed to be large. There are several reasons for this ambiguity: data limitations, unclear demarcation line between the private and the public sectors, lack of transparency regarding the size of extra-budgetary operations and contingent or hidden liabilities, and implicit subsidies, many of which are associated with the public enterprise sector.
Political economy considerations have also often impeded the quest for greater clarity. Much of the growth of governments in the region during the s has been fueled by high rates of economic and population growth. As a result, the size of governments in the MENA countries, as measured by the ratio of central government spending to GDP, averaged about 42 percent of GDP in the s, some 12 percentage points higher than for developing countries as a group excluding the MENA countries.
Although this ratio has been declining since then, by the end of the s it remained relatively high by international standards Figure 4.
Globalization and the Politics of Development in the Middle East
In many countries of the MENA region, the public sector has also increasingly served as employer of last resort, inflating public payrolls and wage bills. By this time it was 4 percentage points of GDP higher than for all other developing countries. Although spending on subsidies and transfers in the region is higher than in other developing countries, evidence for the 12 MENA countries shows that some subsidy reforms may have paid off as they have gradually declined, both as a fraction of GDP and of total government spending.
Nonetheless, generalized subsidies, which have been widely recognized as costly and inequitable, are maintained in several countries, for example, Egypt, the Islamic Republic of Iran, Libya, and the Syrian Arab Republic. In addition, countries in the region continue to devote a large fraction of their budgets to military spending.
For example, in the s, military spending in the region accounted for 20 percent of government spending, compared with developing countries' average of 12 percent. Although a certain level of military spending is needed for internal and external security, current levels are high by international comparison, and, in any event, high military spending did not seem to spare MENA countries from civil strife and war.
Even in the absence of any impending external threat, military service is used in some countries as yet another way of alleviating unemployment pressures, a strategy that depresses productivity, delays labor market reforms, and impedes the process of human capital accumulation. Fiscal reforms. Faced with persistent deficits since the early s, some countries in the region initiated fiscal reforms that, starting in the mids, began to improve fiscal balances Figure 5.
In the tax area, nine countries introduced the VAT between and Morocco and Tunisia were the first countries to introduce the VAT in and , respectively.
A poorly administered tax system is another channel through which the public sector can impose significant costs on the economy. Therefore, some fiscal reforms have aimed at reducing the cost of domestic resource mobilization by improving the administration of the tax system. Adoption of the VAT and its associated tax administration improvements have tended to enhance the efficiency of the entire tax system. Other fiscal reforms have targeted a broadening of the tax base through reduction or elimination of tax exemptions e.
On the expenditure side, significant reforms have taken place in the area of public expenditure management systems e. Although public ownership in itself is not necessarily a cause for inefficiency in the operation of public entities, the full development of productive enterprises in an increasingly competitive environment has often called for private ownership within a framework of sound corporate governance structures.
As a result, privatization of state-owned enterprises has been viewed as one approach to the rationalization of public sector activities. Although comparison of privatization receipts across countries is somewhat problematic, the available data show that the privatization process in the MENA region has been rather slow.
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Throughout the world, major infrastructure, such as telecommunications and power, has generally been the sector that generated the largest proceeds from privatization and this has also been the case in the MENA region. In addition to the outright sale of government assets, privatization attempts have taken other forms. Some countries are experimenting with financial contracts and leasing arrangements between the public and the private sectors. Egypt has made some successful inroads into the divestment of state holdings by adopting domestic stock exchange floatation and employee buyouts.
Jordan's privatization strategy has benefited from proper sequencing and a clear institutional environment, supported by legislative and regulatory oversight. In Saudi Arabia, a list of activities targeted for privatization was issued by the Council of Ministers in November Subsequently, 30 percent of the equity stake in the Saudi Telecommunication Company was successfully sold to the public in December While progress has been made, the process of rationalizing the role of the state and adapting it to the requirements of a modern, competitive economy remains incomplete.
Most economies in the region remain dominated by large public sectors that are heavily vested in financial markets through state-owned banks and other public enterprises.
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These provide a wide range of goods and services that would normally be produced by the private sector in a market-based, competitive environment. More often than not, public enterprises are not part of the regular budget process and hence escape the required public scrutiny.
Many are actively engaged in quasi-fiscal activities that are not subject to the rigors of transparency and financial accountability. Public infrastructure. The quality of the infrastructure in the MENA region varies enormously across countries and sectors.
The transportation infrastructure, for example, is highly developed in most countries of the region but telecommunication services, especially through modern, high-capacity fixed line networks, remain inadequate. According to the World Bank's World Development Indicators, as of , the average waiting time for connection to public telephone mainlines for the region was 1. However, it should be noted that cross-country comparisons of waiting time is complicated by the advent of mobile phones and applicants registering more than once to obtain a public fixed phone line.
Inefficient production and distribution of electricity, an important ingredient in the business infrastructure, is another cause for concern and another high cost area in the MENA region.