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In this paper we empirically analyze the link between economic reforms, human capital, physical infrastructure and growth for a panel of 44 developing countries over 1970-80 to 1999. For this purpose, we generate aggregated reform indicators using principal component analysis. We show that the growth performance of the MENA region has been disappointing because these economies have lagged behind in terms of economic reforms. However, our analysis also reveals that the growth dividend of some reforms has been small. This is the case of structural reforms when implemented in an unstable macroeconomic environment -which corresponds to the situation of the MENA countries in the 1980s -as well as of macroeconomic reforms if accompanied by a low level of structural reforms -as observed during the 1990s. Our result illustrates the complementarities between reforms developed by Mussa (1987) and Williamson (1994). Actually, after human capital and physical infrastructure, our analysis makes of macroeconomic and external stability key variables for the reform process and for the growth prospects of the developing world.

National audience; This paper addresses the issue of the low level of private investment in the Middle East and North Africa (MENA) region, with special emphasis on the role of governance. Based on the existing published reports, we categorize what types of governance institutions are more detrimental to entrepreneurial investments. We then estimate a simultaneous model of private investment and governance quality where economic policies concurrently explain both variables. Our empirical results show that governance plays a significant role in private investment decisions. This result is particularly true in the case of “administrative quality” in the form of control of corruption, bureaucratic quality, investment-friendly profile of administration, law and order, as well as for “political stability.” Evidence in favor of “public accountability” is also found. Our estimations also stress that structural reforms like financial development, trade openness, and human development affect private investment decisions directly, and/or through their positive effect on governance.

The Arab region faces a growing realization that development paths of the past are no longer capable of achieving national objectives. The problem of insufficient job creation in the Arab region is mounting, and without fundamental transitions in the Arab economies which ensure greater and sustainable job creation, the employment challenge will worsen rapidly and dramatically. The authors will articulate the broad course of action needed in the Arab economies. First, in Section II the authors describe the development challenges facing the Arab world, in particular, the challenge of employment creation. In Section III, the authors examine the constraints of the old development model in the region in terms of meeting these development challenges. Section IV proposes a set of transitions that constitute the contours of a new development model. Section V outlines the fundamental changes needed for making this transition, including improved governance, higher quality education and greater gender equality. The concluding section VI makes a few observations about the feasibility and issues of implementation.

International audience; This paper shows that, during the 1970s and 1980s, MENA economies were characterized by a significant overvaluation of their currency. This overvaluation has had a cost in terms of competitiveness. To determine the degree of overvaluation of the MENA currencies, we developed an indicator of misalignment based on the estimation of an equilibrium exchange rate (Edwards, 1988). The empirical work was based on a panel of 53 developing countries, 10 of which are MENA economies. Although overvaluation decreased in the 1990s, probably due to flexibilization of the exchange rate regime in some MENA countries and to better macroeconomic management in others, misalignment remained higher than in other regions. This may be explained by the MENA countries’ delay in adopting more flexible exchange rates, as well as in reforming their economies. In terms of competitiveness, the estimation of an export equation has shown that manufactured exports have been significantly affected by the overvaluation of the MENA currencies. Countries that already had a more diversified economy benefited more from the decreased overvaluation in the 1990s. These countries also saw a continuous rise in diversification of their manufactured exports, resulting from the significant decline in exchange rate misalignment.