Band 18, Heft 3

The Arab Spring (AS) marked an unprecedented event in the Middle East and North Africa (MENA) region, and it generated political and economic uncertainties and triggered violent conflicts and political rifts. This paper empirically examines the short-run and long-run effects of the AS on foreign direct investment (FDI) inflows to the MENA region and to individual MENA countries. The empirical analysis is implemented through the generalized method of moments (GMM) estimator for dynamic panel models, using different empirical specifications. The benchmark results show that the AS has led to important reductions in FDI inflows to the MENA region. A more detailed empirical analysis reveals significant variations in the AS effects on FDI inflows across MENA countries and it underscores distinct patterns over different time periods. These findings imply that governments in the MENA region are required to maintain political stability, and to adopt distinctive policies that lessen the adverse implications of the AS and that set favorable conditions for FDI inflows in the post-COVID-19 pandemic era.

The economic impacts of COVID-19 were negative across nations but with different degrees depending on the timing, degree of containment measures and the extent of dependency on the world economy. Moreover, the policy response has been heterogeneous across different countries, but mainly addressing urgent and short-term problems without addressing the structural problems that led to the vulnerability of these countries in crisis times. Thus, the objective of this paper is threefold. First, it distinguishes between the supply and demand effects of COVID-19. Second, we examine the key differences between the short and long terms effects of the policies that were adopted. Finally, we modify the model to include the informal labor that was highly affected by the pandemic, and we relax the assumption of perfect competition and replicate the simulations under an imperfect competitive framework in order to see how reforms pertaining to competition policies can alter the adopted policies. To do so, we use a dynamic CGE model calibrated on the Egyptian Social Accounting Matrix of 2014/2015. Our findings show how the Egyptian economy has been relatively vulnerable to external shocks that affect its sources of foreign currency. Yet, most of the effects are temporary and vanish in the long run. Imperfect competition in commodity markets would increase the adverse effects of the pandemic and undermine the effectiveness of public policies.

Using data on MENA country-banks, we study how interbank connections affect bank risk and returns. The findings indicate that interbank connections are determinantal to bank stability in the MENA region during periods of crisis, supportive of contagion effects. There is also a dampening impact on profitability. Over and above, the evidence for Islamic banks is supportive of contagion effects during the crisis, although their profitability is higher as well. Furthermore, macroprudential policies appear to exert a salutary impact on bank behavior, although this impact differs across the response variable: being effective for credit exposures with profits as the outcome and for funding exposure when non-performing loan ratio is the outcome variable.