Diversity in Economic Growth
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Diversity in Economic Growth

Global Insights and Explanations

Edited by Gary McMahon, Hadi Salehi Esfahani and Lyn Squire

Economists have long relied on cross-country regression analysis to identify the determinants of continued growth, but with only limited success. This book demonstrates the value of a different approach.
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Chapter 5: Understanding Common Trends and Variations in the Growth Experience of MENA Countries

Hadi Salehi Esfahani


Hadi Salehi Esfahani A host of recent work on economic development in the Middle East and North Africa (MENA) has noted that the region experienced generally high growth rates until about 1980 and suffered a long-term slowdown afterward (Yousef 2004a). Although many other developing countries have also encountered slowdowns since the 1970s, the post-1980 decline in the MENA countries was typically much more pronounced and far longer lasting (see Figure 5.1 and Table 5.1). As a result, although per capita income in MENA had reached levels well above the developing-country average, that advantage has been quickly eroding in the past quarter century. The pattern of boom and bust in MENA seems to be positively related to movements in oil prices. However, the connection is not straightforward, because both oil and non-oil parts of each economy have by and large moved together over many years, while theoretically a rise in oil revenues may have a positive or negative effect on non-oil GDP. Besides, if the issue were only oil revenue, the oil importers in the region should have performed better after 1980, and oil exporters should have adjusted to the revenue decline much earlier. A common interpretation of the growth pattern in MENA is that the rising natural resource rents before 1980 allowed high investment and high growth while strengthening redistributive policies in the form of implicit ‘social contracts’ between the rulers and various interest groups in MENA societies. Later, when the resource rents declined, those social contracts came to haunt...

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