Validity of Thirlwall’s Law in MENA Countries

Abstract

The external demand side determinant, of the Middle East and North Africa, economic growth is being studied employing Thirlwall’s model. This study employs co-integration technique to test for the existence of long run relationship between real economic growth rates and real nonoil export. The results support the existence of long run relationship between the real export and real economic growth in MENA countries except for Kuwait, Qatar, Saudi Arabia, and UAE which are oil producing countries and their growth rate is driven by other factors, like capital inflow. The results divide the sample countries into two groups, Saudi Arabia, Syria, Tunisia, and UAE have positive differences between the actual and the predicted growth rates which is interpreted as high income elasticity of imports demand where there is high import volume effect as a result of any increase in real income growth. Moreover, Saudi Arabia and UAE have high capital inflow since they are oil producing countries, while the TOT in Tunisia and Syria is changing unfavorably. Algeria, Bahrain, Egypt, Iran, Israel, Jordan, Kuwait, Libya, Morocco, Oman, Qatar, and Yemen have negative differences between the actual and the predicted growth rates. These negative differences can be interpreted as a slower growth rate in the capital inflow than the growth rate in exports volume, and to the positive relative price effect.