Reviving Growth in the Arab World

This paper analyzes overall economic growth performance in the Arab world since the mid 1960s, with the key objective of developing a better understanding about what drives the growth process in the Arab region. Growth in the region since 1985 has been rather disappointing, both relative to the best performers in the developing world as well as compared to the pre-1985 period . Revitalizing growth in the Arab world would, therefore, suggests asking two pivotal questions: why has growth in the Arab world lagged behind those developing countries that could be taken to represent the frontier in terms of the development discourse (East Asia)?, and why has growth been so erratic and unstable in the Arab world? To address these two questions, I estimate two growth models on the determinants of long-term growth and the persistence of growth, using global panel data drawn from more than 130 countries. Consistent with received wisdom, our results suggest that growth is associated with some broad fundamentals: effective institutions for protection of property rights, stable macroeconomic environment, adequate human capital and favorable initial conditions. In the Arab world, however, our results also show that growth does not happen without deliberate development strategies for exploiting (and/or overcoming) country-specific or regionspecific potentials (constraints). We find two such growth potentials and one development constraint to be important in explaining the growth process in the Arab world: the advantage of location and geography; associated with export competitiveness and capacity to attract direct foreign investment; the “demographic gift”, associated with the demographic transition to lower age dependency; and the preponderance of regional and civil conflicts, with their multiple negative consequences for development. ______________________________________________________________________________________ An earlier version of this paper was prepared as a background paper for the Arab Development Report 2001. The views expressed in this paper are not necessarily those of the World Bank, its Board of Directors or affiliated organizations. The author would like to acknowledge the research assistance by John Randa, El-Daw Suliman and Reno Dewina.