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Economic growth and investment in the Arab world

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Abstract

This paper analyses the economic growth performance in the Arab world over the last forty years. The Arab world has managed to reduce poverty performance despite its relatively disappointing growth performance. We relate this poor performance of both oil and non-oil producers to investment. Contrary to widespread belief, we do not find evidence that low quantity of investment is the main of low growth. The decline in the investment rate followed rather than preceded the reduction in the aggregate growth rate. We conclude that the low quality of investment projects is the key determinant of growth. The excessive reliance on public investment, the low quality of financial institutions, the bad business environment (due to political and social instability and to excessive public intervention and overregulation) and the low quality of human capital are important determinants of systematically unproductive investment decisions and, thus, low economic growth.

Suggested Citation

  • Xavier Sala-i-Martín & Elsa V. Artadi, 2003. "Economic growth and investment in the Arab world," Economics Working Papers 683, Department of Economics and Business, Universitat Pompeu Fabra.
  • Handle: RePEc:upf:upfgen:683
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    1. Ross Levine, 1990. "Financial structure and economic development," International Finance Discussion Papers 381, Board of Governors of the Federal Reserve System (U.S.).
    2. Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December.
    3. T. W. Swan, 1956. "ECONOMIC GROWTH and CAPITAL ACCUMULATION," The Economic Record, The Economic Society of Australia, vol. 32(2), pages 334-361, November.
    4. Amer Bisat, 1997. "Growth, Investment, and Savings in the Arab Economies," IMF Working Papers 97/85, International Monetary Fund.
    5. Swan, Trevor W, 2002. "Economic Growth," The Economic Record, The Economic Society of Australia, vol. 78(243), pages 375-380, December.
    6. Ravallion, Martin & Datt, Gaurav & van de Walle, Dominique, 1991. "Quantifying Absolute Poverty in the Developing World," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 37(4), pages 345-361, December.
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    More about this item

    Keywords

    Economic growth; investment; the Arab World;

    JEL classification:

    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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