MacroEconomic Issues A R

1
Macro-Economic Issues (A) RW Chapters 3, 5 -
pp. 133-142, and 7-9 Beinin reading
Link to Syllabus
Link to Encyclopedia of the Orient
Link to WDI
Link to https//ctools.umich.edu/portal
2
Macro Indicators Real GDP Growth Inflation
3
Average Growth Rates of GDP/Capita, by Regions p.
36
Source World Bank (2004) Unlocking the
Employment Potential in the MENA page 36
4
Table 3.1 p. 46 (RW). Population and GDP/Cap
5
GDP per capita, 1990 PPP mtsTable 7
6
GDP in 1990 PPP (billion)
1913 1920 1930 1950 1973 1998 Algeria 6,73
8 7,307 8,963 12,136 35,814 81,948 Bahrain - - - 2
42 1,046 2,846 Egypt 8,891 - - 15,224 36,249 140,5
46 Iran - - - 28,128 171,466 274,695 Iraq - - - 7,
041 39,042 24,564 Israel - - - 3,623 30,839 85,520
Jordan - - - 933 3,999 18,313 Kuwait - - - 4,181
23,847 21,565 Lebanon - - - 3,313 8,915 12,077 Lib
ya - - - - 18,298 25,398 Morocco 3,630 4,683 6,739
13,598 28,800 78,397 Oman - - - 304 2,809 17,179
Qatar - - - 763 6,228 5,091 Saudi
Arabia - - - 8,610 73,601 170,972 Syria - - - 8,41
8 27,846 96,112 Tunisia 1,651 2,089 2,786 3,920 12
,051 39,306 Turkey 18,090 16,587 29,124 38,408 144
,483 423,018 UAE - - - 1,130 9,739 31,913 W Bank
Gaza - - - 965 2,455 14,807 Yemen - - - 4,353 12
,431 37,656 Palestine - 325 584 4,588 - - of
which Jews - 67 237 3,468 - - Arabs and
others - 258 348 1,120 - -
mtsTable 8
7
Turkey Real GDP/capita, 1913-2000
Data Maddison (1995) for 1913, Turkish Govt
1926-1960, WDI
8
Egypt Real GDP/capita, 1913-2000
Data Maddison (1995) for 1913, Maddison (2000)
1950-1960, WDI
9
Saudi Arabia Real GDP/capita, 1950-2000
Data Maddison (2000) 1950-1960, WDI
10
Iran Real GDP/capita, 1950-2000
Data Maddison (2000) 1950-1973, WDI
11
GDP/cap Kuwait
12
Lebanon Real GDP/capita
13
Palestine-Israel-West Bank Gaza
14
Table 3.3 p. 59 Structure of Production, by
Sectors
15
Table 3.6 Shares of Manufacturing Value Added
16
Table 3.7 p. 63. Sectoral Distribution of the
Labor Force
17
Table 3.8 p. 65. Exports and Imports
18
Table 3.9 p. 66. Structure of Merchandise Exports
19
Total Factor Productivity
20
TFP by Regions p. 78
Source World Bank (2004) Unlocking the
Employment Potential in the MENA page 78
21
TFP in MENA p. 80
Source World Bank (2004) Unlocking the
Employment Potential in the MENA page 80
22
Labor Markets
23
Actual and Projected Labor Force Growth by
Regions p. 56
Source World Bank (2004) Unlocking the
Employment Potential in the MENA page 56
24
Real Wages, MENA
Source World Bank (2004) Unlocking the
Employment Potential in the MENA
25
Real Wages in Manufacturing
Source WB (2008) The Road Not Traveled
26
Egypt Real Wages, 1988-2006
Prof. mt is very sceptical of this data
Source ERF Forum Vol.13 2, Winter 2006.
27
Egyptian labor painting
Mohammed Hamed Ouwis (1919-) End of Working Hours
1963
28
Intl Comparison of Unemployment Rates, 2002 p. 43
Source World Bank (2004) Unlocking the
Employment Potential in the MENA page 43
29
Unemployment Rates in MENA. P. 72
Source World Bank (2004) Unlocking the
Employment Potential in the MENA page 72
30
MENA Unemployment Total, and by Gender
Source WDI MENA_Unemployment.xls
31
Govt Employment as Share of Total p. 34
MENA has high levels
Source World Bank (2004) Unlocking the
Employment Potential in the MENA page34
32
Public Sector Employment in Egypt p 35
Source World Bank (2004) Unlocking the
Employment Potential in the MENA page 35
33
Right to work statements p. 32
Source World Bank (2004) Unlocking the
Employment Potential in the MENA page 32
34
Poverty and Income Distribution
35
Figure 10.4 p. 276. Incidence of Poverty in 2000,
by Regions
of Population.
36
Figure 10.5 P. 277. Poverty Trends in MENA
37
Poverty Trends Morocco, Tunisia, Egypt. Chapter
10
38
Rural vs. Urban Poverty Rates
Source World Bank/Farrukh Iqbal (2006)
Sustaining Gains in Poverty ReductionMENA Page
15
39
Table10.8 p. 279. Distribution of Income, 2005
US 2 5 11
16 22 46 30
In this comparison, Egypt and Jordan have the
lowest inequality. The US has above average
inequality.
40
Income Distribution
Source WB (2008) The Road Not Taken
41
Gini Coefficients
Source WDI The gini coefficient for the US in
2000 was 41
42
Spending on Social Safety Net Programs
Source World Bank/Farrukh Iqbal (2006)
Sustaining Gains in Poverty ReductionMENA
Page 57
43
Food Subsidy Costs p. 60
Source World Bank/Farrukh Iqbal (2006)
Sustaining Gains in Poverty ReductionMENA page 60
44
Incidence of Energy Subsidies in Iran, Urban vs.
Rural p.64
Source World Bank/Farrukh Iqbal (2006)
Sustaining Gains in Poverty Reduction MENA page
64
45
Historical background to state-led growth in MENA
(Chapter 7 of RW)

• Ottoman territories had been free trade due to
  treaty with UK in 1830s.
• Until 1930s, MENA elites espoused liberal
  projects, modeled after England and France.
  Reaction to Protectorates led to a rejection of
  liberalism. Palestinian Arab Revolt of 1936-39
  marked a transition. Another was the 1942
  incident in Cairo, in which British tanks forced
  Wafd to support UK. Also, rejection of French
  tutelage in Northern Africa
• This led to the emergence of the public sector in
  the 1950s and later, which can be described as
  an interventionist state, thereby differing from
  the western (classical) liberal tradition of a
  minimalist state.
• Examples Ataturk. Reza Khan of Iran, Nasser,
  Bourguiba (Tunisia). Also Bath party, Hafez
  al-Assad, Saddam Hussein, Ben Balla/ Boumedienne
  (Algeria). Kadafi (Libya)

46
Background (ii)

• First emphasis on agriculture, then during the
  Depression, a push for industrialization,
  etatism - ISI - and eventually SOEs. (RW call
  this the Turkish Paradigm).
• Not socialist controls but does not own but
  used 5-year plans
• Hostility towards Foreign Investment
• Modernization of tax system new taxes were
  progressive
• Comment that the Turkish example helped inspire
  Arab Socialism
• Nationalist, and Urban Social Radicalism
  (Authoritarian Populists) breaking with
  liberalism. Was secular. Corporativist, large
  unions.

47
Core attributes of State led growth (etatism)

• Preference for redistribution and equity
• Preference for states over markets in managing
  economies
• ISI State planning
• Encompassing vision of role of the state in
  provision of welfare
• Vision of the political arena as the expression
  of the organic unity of the nationrather than
  site of political contestation or aggregation of
  conflicting preferences
• RW draw comparisons and contrasts with the
  Liberal Monarchies of Iran, Jordan, Morocco,
  and with
• the conservative monarchies of the Arabian
  Peninsula.

48
Contradictions of State Led Growth RW Chapter 8

• Protectionism didnt work
• Infant industries didnt grow up
• Companies remained dependent on imported
  inputs
• SOEs never became efficient
• Failure to generate sufficient new jobs
• Two gaps savings/investment, and foreign
  trade
• Agrees with Joel Beinin ??? ????

There could be a lengthy discussion about the
role of politics in this.
49
Samir Amin, 1931 -
Samir Amin is an Egyptian political author, born
in 1931. He currently lives in Dakar, Senegal.
Amin was trained in Paris, and is one of the
regions best-known Neo-Marxian thinkers, both in
development theory as well as in the
relativistic-cultural critique of social
sciences. He is the director of the Forum du
Tiers Monde
(Third World Forum), based in Dakar. He is a
promoter of the conscious self-reliance of
developing countries, particular for the Arab
world. His numerous books include Eurocentrism
(1988), L'empire du chaos (Empire of Chaos, 1991)
and Au-del? du capitalisme (Spectres of
Capitalism, 1998).
50
Symptoms of Problems

• Inflation
• Balance of payments deficit
• Excessive borrowing foreign debt
• Govt deficit

51
Reforms - Chapter 9 of RW.
Washington Consensus - IIE (p. 229 of RW)

• Fiscal discipline
• Reorientation of public expenditures
• Tax reform
• Interest rate liberalization
• Unified and competitive exchange rates

• Trade liberalization
• Opening to foreign direct investment
• Privatization
• Deregulation
• Securing property rights

52
Solutions

• Contractionary fiscal and monetary policy
• Devalue exchange rate (or remove controls)
• Free capital controls
• Break up unions. Eliminate minimum wage.
  Eliminate subsidies
• Privatize SOEs
• Borrow from IMF or World Bank
• Structural Adjustment Program

53
Further Complications, revealed by recent
experiences

• Issue of sequencing reforms
• Orthodox vs. Heterodox stabilization policies

Negative Consequences
Some policies worsen inflation (devaluation,
indexing) (Is inflation a result of fight
over income distribution?) Many examples of
worsening of income distribution, and
unemployment caused by contractionary
policies Evident negative political
consequences, both because of domestic
effects, and because of foreign effects (selling
out)
54
Rodriks amendments to the Washington Consensus.
p. 229

• Prudent capital account opening
• Non-intermediate exchange rate regimes
• Independent central bank/ inflation targeting
• Social Safety nets
• Targeted poverty reduction

• Corporate governance
• Anti-corruption
• Adherence to WTO
• Following international financial codes and
  standards

Link to Rodriks blog http//rodrik.typepad.com/
55
Composite Index of Reform
MNA - MENA EAP East Asia LAC Latin
American SAR Sub-Saharan Africa
Source Dasgupta et al.(2002), Reform and Elusive
Growth in the Middle East
56
Change in Composite Reform Index
Source Dasgupta et al., Reform and Elusive
Growth in the Middle East
57
World Bank Judges Egypt Top Reformer, 2008
Link to summary
58
Impact of Structural Reforms
Source M.K. Nabli and Véganzonès (2004) Reforms
and Growth in MENA Countries
59
Telecommunications Liberalization in MENA
Source World Bank Trade Investment and
Development in MENA Figure 5.6
60
Inflation
61
Inflation, by Regions
Source WDI data
62
Inflation-CPI MENA Countries
Source WDI data
63
Turkey kicks the habit of high inflation
Source IMF Survey, September 20, 2004
64
Calculated RERs
Calculated as x-rate x PUS/Plocal. Increase in
RER should increase exports
65
Turkey Real Exchange Rate
RER is measured as EPus/Plocal increases in RER
increase home exports
Source Central Bank of Turkey
66
Turkey Real Exchange Rate
100
Inflation in Turkey
50
Source Central Bank of Turkey
67
Israel REER
Source Data from WDI
68
RER in Egypt and Jordan
RER is measured as EPus/Plocal increases in RER
increase home exports Source Domac and Shabsigh
IMF (1999)
69
Evolution of RER in Morocco and Tunisia
RER is measured as EPus/Plocal
Source Domac and Shabsigh IMF (1999)
70
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