Growth, fluctuations and macroeconomic policies: Evidence from Arab open economies

Abstract

In this paper, we examine empirically the Macroeconomic policy impact on economic Growth in four Arab open economies over the period 1982–2013. The multivariate Markov switching approach is used to study the trade openness, financial development, financial integration, inflation and investment shock effects on growth according to the economic state. Our findings are (i) two economies were under persistent recession states for most of the time, (ii) macroeconomic policy do not lead to dynamic gains from trade in the largest Arab countries, (iii) inflationary pressure stimulates economic growth through domestic investment, (iv) financial Integration and the financial Development suggest that structural reforms in the banking sector and financial markets should be implemented, and (v) short term stabilization policies should be accommodated to the macroeconomic fluctuations. These results in terms of economic policy recommendations were not possible to be carried out outside the RBC framework.