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

  • Ahmet Faruk Aysan
  • G. Pang
  • M-A Veganzones-Varoudakis

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.

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Paper provided by Bogazici University, Department of Economics in its series Working Papers with number 2006/07.

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Date of creation: Jul 2006
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Handle: RePEc:bou:wpaper:2006/07
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