Band 1, Heft 3

This paper investigates the process of adjustment in employment. A dynamic model is applied to a panel of six Tunisian manufacturing industries observed over a period of 25 years, from 1971 to 1996. Industries are assumed to adjust their labor inputs toward a desired level. A labor requirement function is specified in terms of observable variables used to model the desired level of labor. The adjustment process is both industry-specific, as well as time-specific, and is expressed in terms of factors affecting the speed of adjustment. The empirical results show that, in the long run, employment demands respond greatest to output, followed by changes in capital stock, and least by wages. Over time, the speed of adjustment in employment and the degree of labor-use efficiency show large variations among the industries.

This paper aims to test econometrically the validity of Heckscher–Ohlin (H–O) theory within the context of export patterns of 11 relatively water abundant and relatively water-scarce countries located in the Eastern Mediterranean and Middle East and North Africa (MENA) regions. For this purpose, the paper calculates the revealed comparative advantage (RCA) and net trade indices (NTI) for 13 sectors in each country and estimates the relationship between RCA values and water requirements of production in each sector. The results are then used to test whether parameter values estimated from this exercise can be linked to water endowments of the countries considered. By helping determine whether the countries in the sample act according to their comparative advantages, econometric results from this innovative application of H–O theory yield interesting policy conclusions.

The emerging literature on foreign direct investment (FDI) now stipulates that FDI’s positive impact on growth depends on absorptive capacities. Prime among these capacities is financial development. The paper provides support to this thesis in the context of the Arab countries whose financial system is predominantly bank-based. It finds that Arab FDI will have a favorable effect on growth if interacted with financial variables at a given threshold level of development. It also finds that in reform countries FDI could Granger cause financial development. The conclusions that emerge from the paper are that domestic financial reforms should precede policies promoting FDI, investment measures should enhance the environment for all investors—foreign and domestic alike—and liberal commercial policies should be designed as initial measures to attract FDI.

The paper analyzes the long memory property of stock index returns in 14 markets with diverse levels of development. While the sample includes the developed stock markets of Japan, UK and USA, it also includes, in addition to the emerging markets of Brazil, India and Mexico, those of eight Arab countries as benchmarks of thin markets with the aim of investigating the link between fractional integration dynamics in stock returns and the level of stock market development. Using parametric and semi-parametric estimation procedures, the results show that the property of long-range dependence in stock index returns tend to be associated with relatively thin stock markets. Evidence from the Arab countries seems to suggest that long-memory might also be linked to the peculiar characteristics and the environment within which each stock market operates.

This study offers some preliminary results about stock valuation in the emerging market of the United Arab Emirates. It examines the determinants of three valuation multiples in the period from 1996–2001, the price sales (PS), the price book value (PBV) and the price earnings (PE). Consistent with economic theory it is found that (1) the PS is positively significantly related to net profit margin; (2) the PBV is positively significantly related to return on equity; and (3) PE is positively significantly related to the payout ratio. The PE proved to be the most difficult to model because of the existence of outliers. These outliers can be explained by two extreme cases: Case 1, companies that have very low payout and growth rates, and still achieve the highest PE ratios; Case 2, companies that tend to pay far more in dividends compared to what they achieved in profit. Abu Dhabi Islamic bank seems to be trading at higher PE and PS multiples compared with commercial banks due to its clientele appreciation of its services rather than the net profit margin achieved or the dividends paid. Judged by R2 and statistical evidence, the PBV and PS valuation models stand a better chance of explaining and possibly predicting prices in the UAE than the PE model.