Reforms and Growth in MENA Countries:New Empirical Evidence

In this paper we empirically analyze the linkages among economic reforms, human capital, physical infrastructure, and growth for a panel of 44 developing countries over 1970-80 to 1999. For this purpose, we generate aggregated reform indicators using principal component analysis. We show that the growth performance of the MENA region has been disappointing because these economies have lagged behind in terms of economic reforms. However, our analysis also reveals that the growth dividend of some reforms has been small. This is the case when structural reforms are implemented in an unstable macroeconomic environment (which corresponds to the situation of the MENA countries in the 1980s), and when macroeconomic reforms are accompanied by a low level of structural reforms (as observed during the 1990s). Our result illustrates the complementarities between reforms as modeled by Mussa (1987) and Williamson (1994). Actually, after human capital and physical infrastructure, our analysis finds that macroeconomic and external stability are key variables for the reform process and for the growth prospects of the developing world.