On Modeling the Determinants of Total Factor Productivity in the MENA Region: A Macro-Micro Firm-Level Evidence

Abstract

Using the World Bank Enterprise Surveys for Middle Eastern and North Africa (MENA) countries, the paper estimates total factor productivity (TFP) and examines its determinants. Our contribution is twofold. First, we provide TFP estimates by country and sector for the MENA region and examine how TFP varies with firm's age, size, export status, formal status and ownership. Second, we combine both micro (firm-level) and macro (nation-level) determinants of TFP to show how macroeconomic policies can affect firms' productivity levels. Our findings show that among the micro determinants, government ownership, foreign capital, female managers, owning a foreign certification, and formal registration of firms are all positively associated with TFP, with competition also exerting a positive impact on firms' productivity. All the macro determinants on the other hand, with the exception of trade openness, display the expected influence on TFP as suggested by the literature. Longer time to enforce contracts, high tax burden and high lending rates all tend to have a significantly negative impact on TFP. Higher tariffs, however, have a surprisingly positive impact on TFP which may emphasise the adverse effect trade openness can have on TFP as a result of the economy's limited ability to absorb the positive spillovers of trade.