This is a cross-post of a piece written by Niveen Wahish (ERF Communications Officer)
On the second day of the ERF workshop on “The political economy of transformation in the ERF region”, a policy seminar was held to discuss the performance of the Tunisian economy in light of the ongoing political transformations. The following post is a reflection on the different presentations and interventions tackling Tunisia’s structural reforms in the aftermath of the Arab spring, as well as the eternal link between the lack of political consensus and economic problems. As stated by Mustapha Nabli, Former Governor of the Central Bank of Tunisia; political landscape and coalitions can be double-edged as they can constrain policies and reforms, or open opportunities for new reforms.
Mustapha Nabli & Sonia Naccache
In three years of transition, the Tunisian economy has suffered tremendously, mainly because of the political situation. This message was at the heart of a policy seminar, organized by the Economic Research Forum (ERF), on “The Performance of the Tunisian economy in light of the ongoing political transformations”.
According to Moez Labidi (University of Monastir), Tunisia’s growth rate has dropped to around 2.5-3 per cent in 2013 compared to 5.6 per cent in 2010. In his presentation titled “Tunisia’s Macroeconomics; waiting for political stability and structural reforms,” Labidi listed the number of problems faced by the Tunisian economy during the transition and since the revolution in early 2011.
Sonia Naccache (University of Tunis) reiterated a similar view. During her presentation on “Structural reforms in Tunisia: an agenda in waiting”, Nakkash described how the political squabbling affected the decision making process in Tunisia. She lamented that in the three years that followed the uprising, Tunisia has had two transitions: the first was from January 2011 to October 2011; the second began in October 2011 to-date. There have been five governments during the two periods. Yet, none of these have managed to come up with a vision for what needs to be done in Tunisia, according to Sonia. The same trend continues today, with the leading party focusing on power control instead of reforms.
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Watch our interview with Mustapha Nabli, Former Governor of the Central Bank of Tunisia
Posted in ERF Events, ERF Seminars & Workshops | Tagged economic transformation, erf, political economy, political trabsformation, transition, tunisia | 2 Comments »
This is a cross-post of a piece written by Kaouthar Gazdar (PhD in Economics, University of Sousse) & Hajer Kratou (PhD student in Economics, University of Carthage & University of Auvergne)
Crony capitalism in Egypt
The second session of the ERF workshop on “The political economy of transformation in the ERF region” introduced two important papers by Ishaq Diwan (Harvard Kennedy School) and Ragui Assaad (University of Minnesota, USA).
Ishac Diwan (Harvard Kennedy School, USA)
Entitled “Crony capitalism in Egypt”, Diwan’s study analyzes the nature and extent of Egyptian “crony” capitalism by comparing the corporate performance and the stock market valuation of politically connected and unconnected firms, before and after the 2011 popular uprising that led to the end of President Mubarak 30 years rule.
By looking closely at capitalism in Egypt, the paper is an attempt to understand why Arab capitalism has not been very dynamic; in other words the reasons behind the low performance and innovation of firms.
Making Sense of Arab Labor Markets: The Enduring Legacy of Dualism
The second part of the session was dedicated to Ragui Assaad who presented his paper “Making Sense of Arab Labor Markets: The Enduring Legacy of Dualism”. Assaad investigates the consequences of the nature of the Arab region’s economy on the outcomes of the labor market.
Ragui Assaad (University of Minnesota, USA)
He argues that common characteristics shared by the Arab labor markets; such as oversized public sector, high unemployment for educated youth and weak private sector, as well as the low quality of the education system, can be explained by the deep and persistent dualism that characterizes these markets. Such dualism is the result of the use of labor markets by the Arab regimes as a tool of political appeasement in the context of the “authoritarian bargain” social contract that they have struck with their citizens in the post-independence period.
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Watch our interview with Ishac Diwan
Watch our interview with Ragui Assaad
Posted in ERF Events, ERF Seminars & Workshops | Tagged arab region, arab spring, dualism, egypt, energy, energy subsidies, erf, labor market, political economy, subsidies | Leave a Comment »
This is a cross-post of a piece written by Pierre-Guillaume Méon & Khalid Sekkat, Centre Emile Bernheim - Université libre de Bruxelles (U.L.B.), on their ongoing research “A time to throw stones, a time to reap: How long does it take for democratic reforms to improve institutional outcomes?“ and published on GDNet Blog
Democracy, institutions and growth
The Arab Spring by ousting authoritarian regimes raises hopes and expectations of better wealth and inclusiveness. Scientific analyses show, however, that democratization alone does not guarantee economic success. The better quality of institutions that is expected to follow democratization would improve economic performance, inclusiveness and effective accountability of rulers. While the outcome of the process started by the Arab Spring is still uncertain, studying other processes of democratization around the world may shed light on its potential impact on the quality of institutions in Arab countries.
A number of breaking path researches (e.g. Barro, 1991 and 1996 and La Porta et al., 1999) has shown that democracy does not guarantee economic success. At the same time, however, a flurry of studies established the importance of the quality of institutions for growth and development (Keefer, 1993 and Mauro, 1993). The relation is not simply a temporal or spatial correlation but reflects a causal linkage running from the quality of institutions to growth and development (Hall and Jones, 1999 and Acemoglu et al., 2001).
The apparent disconnection between the wealth of evidence of a positive impact of institutions on growth and the mixed evidence about the effect of democracy on growth has been clarified latter on (e.g. Glaeser et al., 2004) by distinguishing between the institutional change and its outcomes. Democratization is an institutional change that needs first to affect the functioning of institutions in order to affect growth and inclusiveness.
What international experience tells about democratic transitions and institutional outcomes
Our on-going research seeks to address the above issue. To do so, we apply a method of analysis of institutional quality change (Rodrik and Wacziarg 2005, Papaioannou and Siourounis, 2008, and Méon et al., 2009) that studies the evolution of institutional quality indexes around episodes of democratic transitions in a panel of 39 developing countries over the period 1984-2010.
The preliminary findings are summarized in Figure 1. Institutional quality is measured by eleven components of the International Country Risk Guide index. Democratic transitions are defined according to the PolityIV dataset, as the ending of an established polity and the beginning of a new and more democratic polity (Marshall et al., 2011).
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Read the paper
Posted in ERF Events, ERF Seminars & Workshops | Tagged arab spring, democracy, democratic transition, democratization, development, erf, growth, institutions, political economy | Leave a Comment »
Why Arab capitalism has not been very dynamic? what are the reasons behind the low performance and innovation of firms? Is it related to cronyism? And if yes, did sections dominated by privileges grow more? Were they more profitable than other non-connected firms?
Ishac Diwan (Harvard kennedy School, USA)
All these questions were addressed by Ishac Diwan at the latest ERF workshop and policy seminar on “The political economy of transformation in the ERF region“. In his paper “Crony capitalism in Egypt”, Diwan looks closely at the question of corruption in Egypt while analyzing the performance of politically connected firms which benefited from facilities regulations, government contracts, licenses access, protection from foreign and domestic competitions, as well as from subsidies energy under the Mubarak regime. “Egypt could have performed much better in terms of economic growth and job creation if the privilegies and exclusions were not as much”, he stated.
How can political connections help in capturing the energy subsidies that go to the energy intensive manufacturing sectors in Egypt?
It is well known that energy subsidies are high in Egypt. The total bill was close to 12% of GDP in 2012. Much of the attention has focused on that part of the subsidies that goes to households as it is also well known that these are highly regressive, with a large share of the benefit estimated at about 50% of the subsidy accruing to the top population quintile.
But energy subsidies also go to firms, and mainly to those in the energy intensive sectors. These subsidies, mainly in the form of diesel, account for nearly 25% of total energy subsidies, costing overall about 3% GDP, or close to $8 billion (in comparison, public investment was 6% GDP in 2012). Are these subsidies less regressive than those going to consumers?
Read more of this post by Ishac Diwan (Harvard Kennedy School) and Marc Schiffbauer (World Bank) on one of the aspects discussed in Ishac’s paper on “Crony capitalism in Egypt”
Watch our interview with Ishac Diwan
Posted in ERF Events, ERF Seminars & Workshops | Tagged egypt, energy, energy subsidies, erf, manufacturing firms, political economy | Leave a Comment »
“The political economy of transformation in the ERF region” is indeed a broad research theme that involves several aspects; going from the nature of representative political institutions, to that of the labor markets in the region, fiscal transparency, characteristics of economic and social policies of the region, performance of manufacturing public and private firms, or efficiency of democratic reforms.
Our first session was dedicated to discuss the rise and fall of representative political institutions in the region, and the factors that brought about political and economic change in the region on the other.
In his presentation, Sami Atallah (Lebanese Center for Policy Studies) shed the light on the importance of historical geostrategic routes from India to England and how it affected the rise of contemporary political institutions in the Middle East. According to him, a glimpse at the countries on the geostrategic route, and their comparison to the rest of the world (except Europe and North and South America), shows how countries on the route are more authoritarian than other countries which are not geographically on the route. By going back to history, in 1798 when Napoleon invaded Egypt, Sami argues that British interference in the political institutions, which derived from their need to secure trade, was detrimental to the evolution of political representative institutions in the region. As a matter of example, the British intervention to remove the Consultative Council in Egypt in 1866 or to prevent the creation of a Consultative Council in Dubai in 1930 affected the rise and evolution of political representative institutions in both countries. Introducing democratic institutions in such countries, which are on the geostrategic route, was much harder in the aftermath of their independence.
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Posted in ERF Events, ERF Seminars & Workshops | Tagged arab region, arab spring, economic transformation, erf, geostrategic routes, political economy, political transformation | Leave a Comment »
ERF’s workshop and policy seminar on “The political economy of transformation in the ERF region” kicked off in Tunis yesterday, October 27th. The workshop aims at discussing a number of draft papers, submitted in response to a call launched by ERF under the theme of the workshop, among authors and experts in order to improve its final output.
Panel session 1 – Political economy of transformation in the ERF region
The ERF call for papers comes amid speculations regarding the direction the transformation process in the Arab spring countries is heading to and its final destination. Although the workshop refers in its title to ‘ERF region’, the majority of papers to be presented throughout the busy two days of October have to do more or less with Arab spring countries, with a special focus on Egypt. This morning session shedded new lights on the determinants of democracy in the Arab countries.
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Posted in ERF Events, ERF Seminars & Workshops | Tagged arab region, arab spring, economic transformation, erf, political economy, political transformation | Leave a Comment »