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The Impact of Governance Environment on Economic Growth: The Case of Middle Eastern and North African Countries

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  • Noha EMARA

    (Rutgers University, USA.)

  • I-Ming CHIU

    (Rutgers University, USA.)

Abstract

The main goal of this paper is to evaluate the impact of governance on economic growth using a group of 188 countries. Although our main focus is on the 21 Middle Eastern and North African (MENA) countries, our findings can be applied to the other countries as well. There are two main contributions in this paper. The first contribution is we are able to create a composite governance index (CGI) that summarizes the existing six governance measurements; the Worldwide Governance Indicators (WGI), using the Principal Components Analysis (PCA) method. The first principal component derived from the WGIs explains as large as 81% of the variations in the original six WGI measurements, which indicates that it can be used as a strong indicator for evaluating government s managerial ability and effectiveness. Following the creation of CGI, the second contribution is we are able to quantify the marginal contribution of improvement in governance to economic performance using PPP adjusted constant per capita GDP data. We find that the per capita GDP would rise by about 2% if the CGI increases by one unit. Using the Rule of 70, the marginal estimate further indicates a mere five-unit improvement in CGI would double the country s per capita GDP in seven years. Nonetheless, the effect of improvement of governance can not account for the higher than expected per capita GDP in most of the oil rich MENA countries. In other words, the majority of the MENA countries have achieved fragile levels of economic growth that does not depend on sound governance.

Suggested Citation

  • Noha EMARA & I-Ming CHIU, 2016. "The Impact of Governance Environment on Economic Growth: The Case of Middle Eastern and North African Countries," Journal of Economics Library, EconSciences Journals, vol. 3(1), pages 24-37, March.
    • Handle: RePEc:cvv:journ5:v:3:y:2016:i:1:p:24-37
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    Cited by:

    1. Ashraf Helmy, 2021. "The Effect of Institutional Quality on the Balance of Payments in African Countries. A Comparative Study," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(7), pages 1-55, June.
    2. Emara, Noha & El Said, Ayah, 2021. "Financial inclusion and economic growth: The role of governance in selected MENA countries," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 34-54.
    3. Noha Emara & Daniela Zecheru, 2024. "Asymmetric threshold effects of digitization on inflation in emerging markets," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 10(1), pages 1-32, December.
    4. Saizal Pinjaman & Mohamad Afifi Mat Thani & Mohd. Allif Anwar Abu Bakar & Syamsul Hadi, 2025. "The Nexus between Governance Quality and Economic Growth of Malaysia: Short- And Long-Run Analyses," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 9(15), pages 115-129, January.
    5. Sabrina Duarte & Liliana Forzani & Pamela Llop & Rodrigo García Arancibia & Diego Tomassi, 2023. "Socioeconomic Index for Income and Poverty Prediction: A Sufficient Dimension Reduction Approach," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 69(2), pages 318-346, June.
    6. Mohammad Salam Ibrahim AlShiab & Husam-Aldin N. Al-Malkawi & Abdelmounaim Lahrech, 2020. "Revisiting the Relationship between Governance Quality and Economic Growth," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 54-63.
    7. Ashiru Ibrahim & Michael Rabiu Abdulmalik, 2023. "Do trade openness and governance matter for economic growth in Africa? A case of EAC and WAEMU countries," International Economics and Economic Policy, Springer, vol. 20(3), pages 389-412, July.
    8. Biswajit Patra & Narayan Sethi, 2024. "Does digital payment induce economic growth in emerging economies? The mediating role of institutional quality, consumption expenditure, and bank credit," Information Technology for Development, Taylor & Francis Journals, vol. 30(1), pages 57-75, January.
    9. Noha Emara (a) and Loreto Reyes Rebolledo (b), 2021. "Economic Freedom and Economic Performance: Does Good Governance Matter? The Case of APAC and OECD Countries," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 46(1), pages 1-32, March.
    10. Shaker, Saber Adly, 2017. "أثر الحوكمة على عوائد الموارد الطبيعية : دراسة تطبيقية مع إشارة للدول العربية [The Impact of Governance on Returns of Natural Resources: An Empirical Study with References to Arab Countries]," MPRA Paper 78094, University Library of Munich, Germany.
    11. John Bosco Nnyanzi & Susan Kavuma & John Sseruyange & Aisha Nanyiti, 2022. "The manufacturing output effects of infrastructure development, liberalization and governance: evidence from Sub-Saharan Africa," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 49(2), pages 369-400, June.
    12. Luana Enikő Misi Lopes & Natalie Packham & Ursula Walther, 2023. "The effect of governance quality on future economic growth: an analysis and comparison of emerging market and developed economies," SN Business & Economics, Springer, vol. 3(6), pages 1-33, June.
    13. Nayef AlShammari & Shareefa Al-Adwani & Hanouf AlDhafeeri, 2024. "Economic Performance in MENA: it Is in the Institutions," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 8435-8456, June.
    14. Abdullah Abdulaziz A. Bawazir & Mohamed Aslam & Ahmad Farid Bin Osman, 2020. "Demographic change and economic growth: empirical evidence from the Middle East," Economic Change and Restructuring, Springer, vol. 53(3), pages 429-450, August.
    15. Komol Singha & M. Amarjeet Singh, 2022. "Political stability and its effect on economy: some lessons from Sikkim Himalaya," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 24(2), pages 340-354, December.
    16. Joseph Kwadwo Tuffour & Thelma Mensah, 2018. "The Effects of Governance Type and Economic Crises on Foreign Direct Investment Inflows in Ghana," Foreign Trade Review, , vol. 53(2), pages 63-80, May.
    17. Tian Aw Yong, 2020. "Wealth Inequality, Governance and Economic Growth in China," Asian Journal of Economics and Empirical Research, Asian Online Journal Publishing Group, vol. 7(2), pages 235-241.
    18. Sebestyén, Tamás & Szabó, Norbert & Wibisono, Eristian, 2025. "Forráselosztási mechanizmusok és gazdasági hatásaik az intelligens szakosodási stratégia keretében. A magyarországi régiók elemzése a GMR-Európa modellel [Resource allocation mechanisms and their e," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 939-975.
    19. Gupta, Juhi & Kashiramka, Smita, 2020. "Financial stability of banks in India: Does liquidity creation matter?," Pacific-Basin Finance Journal, Elsevier, vol. 64(C).

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    Keywords

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    JEL classification:

    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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