Why economic growth has been weak in arab countries : The role of exogenous shoks, economic policy failure and institutional deficiencies

Abstract EN

Few Arab countries have succeeded since the early 1990s to narrow the income gap to advanced industrial countries.

The growth performance of most Arab countries has been weak by developing country standards, too.

We discuss three factors that may help explain the generally poor, though highly diverse growth record in the region: exogenous shocks, policy failure and institutional deficiencies.

We find that although country-specific shocks played a role, influences beyond the immediate control of Arab policymakers contribute surprisingly little to the explanation of Arab growth patterns.

Economic policy failure in Arab countries appears to be a more important reason for poor growth.

The region has partly fallen into line with the Washington Consensus.

With few exceptions, however, Arab countries lag behind other developing countries when it comes to trimming the interventionist role of the state and integrating themselves into the global division of labor through trade and FDI.

Overall, reforms did not go far enough and remained fragmentary even in Arab countries with a relatively favorable growth performance since the early 1990s.

It has to be taken into account; however, that policy-related variables and economic growth depend on more deeply rooted institutional factors shaping the incentive structure of economic agents.

Institutional development varies greatly between Arab countries, but, generally, is less advanced than the level of per-capita income would suggest.

While the discovery of oil may result in higher growth for some time, the experience of several oil exporters in the region supports the proposition that the abundance of oil encourages rent-seeking and exerts a negative impact on economic growth via its deleterious impact on institutional development.

The experience of countries like Mexico, having managed the transformation from an oil-dependent to a highly diversified economy with more advanced institutions, may show the way for Arab countries.