CSAEWorkingPaperWPS/201123 TheeconomicsoftheArabSpring AdeelMalik andbassemawadallah Correspondingauthor:adeel.malik@qeh.ox.ac.uk DepartmentofInternationalDevelopment,3MansfieldRoad,Oxford,OX13TB,UnitedKingdom. AdeelMalikistheGlobefellowintheeconomiesofMuslimsocietiesattheOxfordCentreforIslamicStudies, fellow of St. Peter s College, Oxford, and a lecturer in development economics at the University of Oxford. BassemAwadallahistheSecretaryGeneraloftheIslamicChamberofCommerceandIndustryandaformer FinanceandPlanningMinisterandChiefofRoyalCourtoftheHashemiteKingdomofJordan. Centre for the Study of African Economies Department of Economics. University of Oxford. Manor Road Building. Oxford OX1 3UQ T: +44 (0)1865 271084. F: +44 (0)1865 281447. E: csae.enquiries@economics.ox.ac.uk. W: www.csae.ox.ac.uk 1
I.Introduction dejure De facto 2
generational 3
political regional First Second Third Fourth Fifth 4
II.Theoriginalsin 5
F IGURE1 Source 6
unemployable private 7
III.Thepuzzle:afragmentedregion 8
F IGURE2 Source F IGURE3 9
Source III.A.Thecostsoffragmentation 10
F IGURE4 Source F IGURE5 11
Source III.B.Defyingtheforcesofgravity single 12
13
F IGURE6 Source 14
license raj dejuredefacto 15
F IGURE7 Source 16
IV.Trappedintradelogistics 17
V.Aninfrastructureforcooperation 18
19
F IGURE8 Source 20
F IGURE9 Source economic VI.Candemographychangethepoliticalcalculus? 21
F IGURE10 Source 22
23
F IGURE11 Source 24
25
26
VII.Conclusion:an openaccessorder wasita despiseddesirable infitah 27
Tanzimat 28
Acknowledgements 1 The Arabworld isbroadlydefinedtoincludethearabnationsofthemiddleeastandnorthafrica. 2 DaronAcemogluandJamesRobinson,2008, ThepersistenceandchangeofinstitutionsintheAmericas, Southern Economic Journal,282299. Alsosee: James Robinson,2010, Elites and institutional Persistence, WIDERWorkingPaper2010/85,Helsinki. 3 AlManar,2010,EmploymentandUnemploymentSurvey:NumberofEmployedJordanians200009.Amman, Jordan. Francisco R. Rodriguez and E. Samman, 2010, The North African Miracle, http://hdr.undp.org/en/humandev/letstalkhd/201011b/ (Also, see, the Human DevelopmentReport 2010, OxfordUniversityPress). 5 TarekM.Yousef,2004, Development,growthandpolicyreformintheMiddleEastandNorthAfricasince 1950,JournalofEconomicPerspectives,18(3),91116. 6 TheWorldBank,2004, UnlockingtheEmploymentPotentialintheMiddleEastandNorthAfrica:Towarda NewSocialContract,Washington,D.C. 7 A.Kapiszewski,2006, ArabVersusAsianMigrantWorkersintheGCCCountries,UN/POP/EGM/2006/02. 8 SaharTaghdisiRad,2011, Jordan sparadoxofgrowthwithoutemployment,developmentviewpoint65, SOAS,UniversityofLondon. 9 The World Bank, 2005, World Development Report: A Better Investment Climate For Everyone, New York: OxfordUniversityPress. 10 UnitedNationsIndustrialDevelopmentOrganization,2009,IndustrialDevelopmentReport2009,Vienna. 11 WorldDevelopmentIndicators(availableat:http://data.worldbank.org/datacatalog). 12 TheimportanceofSuezCanalcanbegaugedfromthefactthataround8percentoftheglobalseaborne tradepassesthroughit.itgeneratedus$4.8billioninrevenuesin2010alone. 13 WorldDevelopmentIndicators(availableat:http://data.worldbank.org/datacatalog). 14 JaneHarrigan,2011, ThepoliticaleconomyofaidflowstoNorthAfrica,WIDERWorkingPaper2011/72, WorldInstituteofDevelopmentEconomicsResearch,Helsinki,Finland. 15 TheWorldBank,2011,WorldDevelopmentIndicators2011,WashingtonD.C. 16 There may also be a feedback from thestate s redistributive systemto demographics, as generous state provisionmayactasanincentiveforalargerfamilysize. 17 Theregionimports50percentofitsfoodcalorieconsumption. 18 Annia Ciezadlo, 2011, Let them eat bread: How food subsidies prevent (and provoke revolutions in the MiddleEast? ForeignAffairs,March232011. 19 http://gitm.kcorp.net/index.php?id=579569&news_type=economy&lang=en 20 Silvana Tenreyro and Miklos Koren, 2010, Volatility, diversification and development in the Gulf CooperationCountries,KuwaitProgrammeWorkingPaper,LondonSchoolofEconomicsandPoliticalScience. 21 Forkeyfeaturesofthisdevelopmentmodel,see,TarekM.Yousef,2004, Development,growthandpolicy reforminthemiddleeastandnorthafricasince1950,journalofeconomicperspectives,18(3),91116. 22 Clemens Breisinger, Olivier Ecker and Perrihan AlRiffai, 2011, Economics of the Arab awakening: From revolutiontotransformationandfoodsecurity.ifprinote,washington,d.c. 23 This is evident in Saudi Arabia, for example, where there are considerable government shares in large businessconglomerates. 24 GiacomoLucianiandSteffenHertog,2010, HasArabbusinesseverbeen,orwillitbe,aplayerforreform?, ArabReformInitiativePolicyPaper1. 25 MarcusNolandandHowardPack,2009,TheArabEconomiesinaChangingWorld,Washington:Peterson InstituteforInternationalEconomics. 26 WorldDevelopmentIndicators2010. 27 NugentandYousef(2005). 29
28 Ibid, chapter 10 (Lulu Shui and Peter Walkenhorst: Regional integration: Status, developments and challenges ). 29 JoséR.LópezCálix,PeterWalkenhorst,andNdiaméDiop,(eds.),2010,TradeCompetitivenessinMiddleEast andnorthafrica:policiesforexportdiversification.worldbank,washington,d.c.(chapter10) 30 FranciscoCaselliandJamesFeyrer,2007, Themarginalproductofcapital,QuarterlyJournalofEconomics, MayIssue,535568. 31 PaulCollierandAnthonyVenables,2010, Tradeandeconomicperformance:DoesAfrica sfragmentation matter?,injustinyifulinandborispleskovic,(eds.),2010,people,politicsandglobalization AnnualWorld BankConferenceonDevelopmentEconomics,TheWorldBank,Washington,D.C. 32 UnitedNationsIndustrialDevelopmentOrganization,2009,IndustrialDevelopmentReport2009,Vienna. 33 WorldDevelopmentIndicators,2010. 34 TheEconomist,2010, SpecialReportonEgypt,July1723Issues,London. 35 TheagglomerationindexfortheMENAregionis67.5%comparedto62%inLatinAmericaandCaribbean. For moredetails please see, Hirotsugu Uchida and Andrew Nelson, 2008, Agglomeration Index: Towards a newmeasureofurbanconcentration,backgroundpaperfortheworlddevelopmentreport2009,theworld Bank,Washington,D.C. 36 Jeffrey B. Nugent and Tarik Yousef, 2005, Does MENA defy gravity? How MENA has performed in its intraregional,euandothertrade?,euiworkingpaper2005/26,europeanuniversityinstitute,florence. 37 Hassan AlAtrash and Tarik Yousef, 2000, IntraArab trade: Is it too little? IMF Working Paper 10, InternationalMonetaryFund,Washington,D.C. 38 NathanNunn,2008, ThelongtermeffectsofAfrica'sslavetrades, QuarterlyJournalofEconomics,123(1), 139176. 39 Hirotsugu Uchida and Andrew Nelson, 2008, Agglomeration Index: Towards a new measure of urban concentration,backgroundpaperfortheworlddevelopmentreport2009,theworldbank,washington,d.c. 40 AnalternativeexplanationrelatestotheinhibitingroleofIslamiclaw.See,forexample,TimurKuran,2010, TheLongDivergence:HowIslamicLawHeldBacktheMiddleEast,PrincetonUniversityPress. 41 The region s fragmentation, together with the intensity of conflict, also increases military spending by individualstates. 42 Malik (2011); Clement Moore Henry and Robert Springborg, 2010, Globalization and the Politics of DevelopmentintheMiddleEast,Cambridge,CambridgeUniversityPress. 43 The important exceptions in this regard are Morocco, Syria and Lebanon, which had sizeable merchant communities. 44 NazihN.Ayubi,1995,OverstatingtheArabState,London:I.B.Tauris. 45 AdeelMalik,2011, ExplainingMiddleEast spoliticaleconomy:whyhistorymatters?,forthcomingasqeh WorkingPaper,UniversityofOxford. 46 Jill Chrystal, 1990, Oil and Politics: Rulers and Merchants in Kuwait and Qatar. Cambridge: Cambridge UniversityPress. 47 Thisindexcorrespondstotheuniformtariffthatifimposedonallimportsfrompartnercountrieswould leaveoverallimportsunchanged,seejoseetal.(2010). 48 TheWorldBank,1999,FromPrivilegetoCompetition:UnlockingPrivateLedGrowthintheMiddleEastand NorthAfrica,Washington,D.C. 49 InternationalMonetaryFund,2011,RegionalEconomicOutlook:MiddleEastandCentralAsia.Washington, D.C.:IMF. 50 SteffenHertog,2010,OilandtheStateinSaudiArabia,Princeton:PrincetonUniversityPress. 51 Ibid, chapter 10 (Lulu Shui and Peter Walkenhorst: Regional integration: Status, developments and challenges ). 52 TheWorldBank,1999,FromPrivilegetoCompetition:UnlockingPrivateLedGrowthintheMiddleEastand NorthAfrica,Washington,D.C. 53 RobertoRocha,SubikaFarazi,RaniaKhouri,andDouglasPearce,2010, ThestatusofbanklendingtoSMEs inmiddleeastandnorthafrica,worldbankreport,theworldbank,washington,d.c. 54 InternationalMonetaryFund,2011,RegionalEconomicOutlook:MiddleEastandCentralAsia.Washington, D.C.:IMF. 55 http://www.enterprisesurveys.org/ 56 Manycountriescontinuetoplacestringentrestrictionsoncurrencyconvertibility.ThisisthecaseinAlgeria, forexample,whichhasasignificantcushionofforeignreservesagainstapossiblerunonthecurrency. 30
57 Hoekman,BernardandAlessandroNicita,2008, Tradepolicy,tradecostsandDevelopingcountrytrade, WorldBankPolicyResearchWorkingPaper4797,Washington,D.C. 58 Therehasbeenasignificantprogressonmaritimetransshipment. 59 TheWorldBank,2011,ConnectingtoCompete2010:TradeLogisticsintheGlobalEconomy,availableat: www.worldbank.org/lpi 60 J. Zarrouk, 2003, A survey of barriers to trade and investment in Arab countries, In A. Galal and B. Hoekman (eds.), Arab Economic Integration: Between Hope and Reality. Washington, D.C.: Brookings InstitutionPress. 61.Zarrouk,2003, AsurveyofbarrierstotradeandinvestmentinArabcountries,InA.GalalandB.Hoekman (eds.),arabeconomicintegration:betweenhopeandreality.washington,d.c.:brookingsinstitutionpress. 62 JuliaDevlinandPeterYee,2005, Tradelogisticsindevelopingcountries:TheCaseoftheMiddleEastand NorthAfrica,TheWorldEconomy,435456. 63 JuliaDevlinandPeterYee,2005, Tradelogisticsindevelopingcountries:TheCaseoftheMiddleEastand NorthAfrica,TheWorldEconomy,435456. 64 United Nations Industrial Development Organization, 2009, Industrial Development Report 2009, Oxford UniversityPress,Oxford. 65 Tunisiaisapartialexception,sinceitsexportsofpartsandcomponentshavesignificantlyexpandedinrecent years. 66 TheWorldBank,2008,MENAEconomicDevelopmentsandProspects2008:RegionalIntegrationforGlobal Competitiveness,Washington,D.C. 67 ExamplesofotherfailedprojectsaretheFederationofArabRepublicsandtheArabCooperationCouncil. 68 The World Bank, 2011, Logistics Performance Index: Arab World, http://siteresources.worldbank.org/inttlf/resources/515003 1276029788910/LPI_Booklet_MENA_Feb2010.pdf 69 MourhafSabouni,1997, ArabRailways pastandpresent,japanrailway&transportreview,12,22 25. 70 PeterRoberts,ShyamKC,andCordulaRastogi,2006, RuralAccessIndex:Akeydevelopmentindicator, TransportPapers(TP10),WorldBank,Washington,D.C. 71 AllenDenis,2006, TheimpactofregionaltradeagreementsandtradefacilitationintheMiddleEastand NorthAfricaregion,WorldBankPolicyResearchWorkingPaper3837,TheWorldBank,Washington,D.C. 72 InternationalMonetaryFund,2011,RegionalEconomicOutlook:MiddleEastandCentralAsia.Washington, D.C. 73 TarekM.Yousef,2004, Development,growthandpolicyreformintheMiddleEastandNorthAfricasince 1950,JournalofEconomicPerspectives,18(3),91116. 74 TherecordofeconomicreformismixedintheMENAregion.Morocco,Tunisia,JordanandEgyptweresome oftheearlyreformersintheregion.reformwaspartiallysuccessfulinegypt;intunisiaandmoroccoitledtoa revivaloffdi. 75 http://www.mcgill.ca/files/icames/boom_bust2.pdf 76 Jordan, Tunisia, Morocco, Lebanon and Egypt have been the prime beneficiaries of these foreign capital flows.forfurtherdetails,seeluluandpeterwalkenhorst,2010, RegionalIntegration:Status,Developments, and Challenges, In ShuiJosé R. LópezCálix, Peter Walkenhorst, and Ndiamé Diop, (eds.), Trade CompetitivenessinMiddleEastandNorthAfrica:PoliciesforExportDiversification.WorldBank,Washington, D.C.(chapter10). 77 Changinggeopoliticalcircumstancesinthewakeof9/11attacks,liberalizationofthefinancialsectorand therecentoilboomhaveallplayedahelpfulpart. 78 Recently,theUnitedStates,whenfacedwiththedifficultyofnegotiatinganFTA,haspushedinsteadfora TradeandInvestmentCooperationAgreementwiththeGCC. 79 ForevidenceonwelfaregainsfromtradewiththeEU,see,AllenDennis,2006, Theimpactofregionaltrade agreements and trade facilitation in the Middle East and North Africa region, World Bank Policy Research WorkingPaper3837,WorldBank,Washington,D.C. 80 Inparticular,tradebetweenMENAcountriescangeneratesignificantdynamicgains. 81 TheUStradeagreementswiththeGulfcountriesaresometimesviewedasdisruptiveforGCCtrade.There havebeenconcernsamonglargegcccountriesabouttheentryofusgoodsintothegccviabahrain.for furtherdetails,pleasesee,fredlawson,2011, GeopoliticalcomplicationsofUSFreeTradeAgreementswith GulfArabCountries,InMatteoLegrenziandBasmaMomani(eds.),ShiftingGeoEconomicPoweroftheGulf, London:AshGatePublishing. 31
82 MichaelHudson,1998,MiddleEastDilemma:ThePoliticsandEconomicsofIntegration,I.B.Tauris,London. 83 Rather than set as their first economic policy priority the goal of regional integration, MENA countries should focus on domestic policy reforms and the associated process of greater integration into the world economy.inmohammada.elerianandstanleyfischer,1996, IsMENAaregion?Thescopeforregional integration,imfworkingpaper30,internationalmonetaryfund,washington,d.c. 84 DouglassC.North,JohnJosephWallisandBarryR.Weingast,2009,ViolenceandSocialOrders Interpreting RecordedHumanHistoryDuringtheLastFourHundredYears.Cambridge:CambridgeUniversityPress. http://blogs.worldbank.org/governance/thearabspringalimitedaccessordersperspective 85 TheWorldBank,2003,UnlockingtheEmploymentPotentialoftheMiddleEastandNorthAfrica:Towarda NewSocialContract.Washington,D.C. 86 Inthisregard,theproposedaccessionofJordanandMoroccototheGCCisawelcomestep,butthedriving incentiveforthisshouldbetheintegrationofmarketsratherthanmonarchies. 87 KristianCoatesUlrichsen,2010, InternalandExternalSecurityintheArabGulfStates,MiddleEastPolicy, available at: http://www.mepc.org/journal/middleeastpolicyarchives/internalandexternalsecurityarab gulfstates 88 MustafaK.Nablietal.,2006, ThepoliticaleconomyofIndustrialpolicyintheMiddleEastandNorthAfrica, TheWorldBank,Washington,D.C. 89 Forafurtherillustrationofthispoint,seethediscussioninchapter4,NazihN.Ayubi,2001,Overstatingthe ArabState:PoliticsandSocietyintheMiddleEast,London,I.B.Tauris. 32