State Business Relations and Economic Growth Prospects in Post-Arab Spring MENA

Abstract

Almost a decade after the outbreak of the Arab Spring (AS), this paper is trying to investigate two main questions. The first is whether there are major changes in State-Business Relations (SBR) in the Middle East and North Africa (MENA) region in the post-Arab Spring (post-AS) in comparison to the pre-Arab Spring (pre-AS) period? The second is whether these changes have a significant impact on the economic growth prospects of the MENA countries? To properly address these research questions, the region is divided into four categories according to their post-AS SBR developments. These are: Gulf; liberalizing; militarizing; and civil war states. The research questions are investigated first by an analytical discussion aided by the available literature and statistical data. Then further investigation is done by regression analysis using a fixed-effects panel model. Both the statistical and regression analysis uses the Global Competitiveness Indicators’ (GCI) “favoritism in government decisions” as an indicator for cronyism, while the Worldwide Governance Indicators’ “voice and accountability” (V&A) is used as a proxy for collaborative governance. Short-run growth prospects are indicated by investment and private investment shares of GDP and long-run growth prospects by innovation and technological readiness. The used analytical tools suggest that post-AS SBR typology has differed from its pre-AS counterpart and that this had likely its effect on the economic growth prospects of the MENA. All over the region, cronyism stayed the major SBR mode. For collaborative governance, an increase in V&A is witnessed in liberalizing countries and some improvement in most of the militarizing countries but a deterioration in the Gulf category. A growing economic role of the military establishment is witnessed in the militarizing category. Although cronyism can encourage private investment, its impact on short-run growth tends to be negative because of its unfavorable effect on overall investment share. It also tends to harm long-run growth by harming innovation, except when it is the only resort in countries where the military is expanding its economic role and V&A levels are low. The growing economic role of the military is suggested by the literature and statistical analysis to harm private investment share, but no supportive empirical evidence is provided by the conducted regressions due to the inexistence of a proper proxy. Despite some unsupportive empirical evidence, collaborative governance is suggested to be the best SBR mode for the region. Empirical evidence shows that V&A fosters short-run growth prospects in liberalizing countries. In militarizing countries, it fosters long-run economic growth more than cronyism, but it could also be, arguably, the best way to phase out military-economic involvement. In civil war countries, collaborative governance is arguably what is exactly needed for the reconstruction of these countries’ economies, whether through building trust or fostering policy discussions that would reintegrate different groups to and encourage their investment in the national economy. This paper is a novel trial in the field. Works on post-AS SBR developments and their effect on economic outcomes in the MENA region are very limited. Moreover, empirical works on SBR in the MENA region, whether pre- or post-AS, are generally inadequate.