Assessing Regional Cooperation in the Middle East

We identify market failures in the development of regional cooperation projects in the Middle East. We use a database of planned projects in the last decade and evaluate their qualities from three main perspectives: micro-economic viability, feasibility and regional impacts. Market failures are evaluated as the gaps between the values of these perspectives, and are assessed for various types of regional cooperation projects. We find that projects of cooperation in infrastructure and public services, on a bilateral or multilateral basis, defined here as ``high profile", are more characterized by heavier regional impacts, and therefore by stronger macro-economic externalities and socio-political externalities. The existence of such market failures requires a policy of stronger involvement of the public sector for the support of this type of projects. Business economic cooperation projects are mostly ``low profile" (implemented separately in single countries) and tend to be based on micro-economic viability and therefore do not require a significant public intervention.