What Types of Perceived Governance Indicators Matter the Most for Private Investment in Middle East and North Africa

By using a simultaneous equations model, this paper establishes that the perceived quality of governance, which is measured by three different indicators “Quality of Administrationâ€, “Public Accountability†and “Political Stabilityâ€, has a positive effect on the private investment decisions in the developing countries. Our model allows us to point out the fact that the mechanisms through which each type of indicator affects private investment are different. In addition to our primary result we also show that Middle East and North Africa (MENA) region could have attained a better private investment performance if it had reached a more advanced level of perceived institutions in last two decades. The low level of public accountability, among other governance deficiencies, was predominantly responsible for the deficiency in private investment in MENA.

Firm-Level Productivity and Technical Efficiency in MENA Manufacturing Industry: The Role of the Investment Climate

This paper investigates the relationship between firm-level productivity and investment climate (IC) for a large number of countries (23) and manufacturing industries (8). We first propose three measures of firms' productive performances: Labor Productivity (LP), Total Factor Productivity (TFP), and Technical Efficiency (TE). We reveal that enterprises in MENA perform in average poorly, compared to other countries of the sample. The exception is Morocco, whose various measures of firm-level productivity rank close to the ones of the most productive countries. We show at the same time that firms' competitiveness in MENA is handicapped by high Unit Labor Cost, compared to main competitors like China and India. The empirical analysis also reveals that the investment climate matters for firms productive performances. This is true (depending on the industry) for the quality of a large set of infrastructures, the experience and level of education of the labor force, the cost and access to financing, as well as to a lower extent, different dimensions of the government-business relation. These findings bear important policy implication by showing which dimension of the investment climate could help manufacturing firms in MENA to be more competitive on the world market

Firm Productivity and Investment Climate in Developing Countries: How Does Middle East and North Africa Manufacturing Perform?

Firm productive performances in five Middle East and North African (MENA) economies and eight manufacturing industries are compared to those in 17 other developing countries. Although the broad picture hides some heterogeneity, enterprises in MENA often performed inadequately compared to MENA status of middle-income economies, with the exception of Morocco and, to some extent, Saudi Arabia. Firm competitiveness is a more constant constraint, with a unit labor cost higher than in most competitor countries, as well as investment climate (IC) deficiencies. The empirical analysis also points out how IC matters for firm productivity through the quality of infrastructure, the experience and education of the labor force, the cost and access to financing, and different dimensions of the government-business relationship. These findings bear important policy implications by showing which dimensions of the IC, in which industry, could help manufacturing in MENA to be more competitive in the globalization context

Financial Vulnerability and Export Dynamics

Etudes & documentsThis study documents the implications of financial vulnerability for export diversification in developing economies. Financial crises, by increasing the incidence of sunk costs of entry into exporting, reduce firm export dynamics. Financially-vulnerable exporters are not able to fully realize economies of scale in production and access better-sophisticated technologies. The number of products and destinations per exporter are therefore likely to decrease in times of crisis. We use a comprehensive cross-country dataset on export dynamics, with data covering the 1997-2011 period for 34 developing countries to investigate this issue. Building on the generalized difference-in-differences procedure proposed by Rajan & Zingales (1998) to remove any endogeneity bias, the results point to a negative and economically large effect of financial vulnerability on export diversification.Financial crises reduce export dynamics disproportionately more in financially dependent industries. This effect is less pronounced in countries with initially more open capital account, suggesting that portfolio inflows are good substitutes for underdeveloped domestic financial markets

Assessing the Responsiveness of Private Investment to Economic Reforms: The Case of MENA Countries

During the 1980s and the 1990s, private investment in the Middle East and North Africa (MENA) has on average shown a decreasing or stagnant trend. This contrasts with the situation of the Asian economies, where private investment has always been more dynamic. In this paper, it is empirically shown for a panel of 39 developing economies--among which four MENA countries-- that in addition to the traditional determinants of investment--such as the growth anticipations and the real interest rate--government policies explain MENA's low investment rate. Insufficient structural reforms--which have most of the time led to poor financial development and deficient trade openness¬¬--have been a crucial factor for the deficit in private capital formation. The economic uncertainties of the region have represented another factor of the firm's decisions not to invest. These uncertainties have consisted of the external debt burden and various measures of volatility

What Types of Perceived Governance Indicators Matter the Most for Private Investment in Middle East and North Africa

By using a simultaneous equations model, this paper establishes that the perceived quality of governance, which is measured by three different indicators “Quality of Administration”, “Public Accountability” and “Political Stability”, has a positive effect on the private investment decisions in the developing countries. Our model allows us to point out the fact that the mechanisms through which each type of indicator affects private investment are different. In addition to our primary result we also show that Middle East and North Africa (MENA) region could have attained a better private investment performance if it had reached a more advanced level of perceived institutions in last two decades. The low level of public accountability, among other governance deficiencies, was predominantly responsible for the deficiency in private investment in MENA

Uncertainty, Economic Reforms and Private Investment in the Middle East and North Africa

During the 1980s and the 1990s, private investment in the Middle East and North Africa (MENA) has on average shown a decreasing or stagnant trend. This contrasts with the situation of the Asian economies, where private investment has always been more dynamic. In this paper, it is empirically shown for a panel of 39 developing economies--among which four MENA countries-- that in addition to the traditional determinants of investment--such as the growth anticipations and the real interest rate--government policies explain MENA’s low investment rate. Insufficient structural reforms--which have most of the time led to poor financial development and deficient trade openness¬¬--have been a crucial factor for the deficit in private capital formation. The economic uncertainties of the region have represented another factor of the firm’s decisions not to invest. These uncertainties have consisted of the external debt burden and various measures of volatility