Volume 9, Issue 2 -

This article extends the long-run growth model of Esfahani, Mohaddes, and Pesaran (Journal of Applied Econometrics, 2012a, forthcoming) to a labor-exporting country that receives large inflows of external income – the sum of remittances, foreign direct investment, and general government transfers – from major oil-exporting economies. The theoretical model predicts real oil prices to be one of the main long-run drivers of real output. Using quarterly data between 1979 and 2009 on core macroeconomic variables for Jordan and a number of key foreign variables, we identify two long-run relationships: an output equation as predicted by theory and an equation linking foreign and domestic inflation rates. It is shown that real output in the long run is shaped by (i) oil prices through their impact on external income and in turn on capital accumulation and (ii) technological transfers through foreign output. The empirical analysis of the article confirms the hypothesis that a large share of Jordan’s output volatility can be associated with fluctuations in net income received from abroad (arising from oil price shocks). External factors, however, cannot be relied upon to provide similar growth stimuli in the future, and, therefore, it will be important to diversify the sources of growth in order to achieve a high and sustained level of income.

Empirical research shows that natural resources have a detrimental effect on economic growth, a phenomenon known as the “resource curse”. Competition between influence groups for access to the resource rents, that is, rent-seeking, is often blamed for this curse. In this article, we dig deeper into the link between political competition and the resource curse by studying the case of Iran from 1960 to 2007. We present a theoretical model demonstrating how the effect of rents on the economy depends on the balance of political power. The model shows that an increase in rents may lead to a sharp reduction in income when the distribution of power between influence groups is relatively balanced. The empirical evidence confirms the predictions of the model.

Although both domestic and foreign private banks have gained ground in Middle East and North Africa (MENA) in recent years, state banks continue to play an important role in many countries. Using a MENA bank-level panel dataset for the period 2001–2008, the article contributes to the empirical literature on bank ownership and performance by documenting recent ownership trends and assessing the relations between bank ownership and performance in MENA while accounting for key bank characteristics such as size and balance sheet composition. The article is the first to analyze headline performance indicators as well as their key drivers and finds that state banks exhibit significantly weaker performance, despite their larger size and potential scale economies. This result is mainly driven by larger holdings of government securities, higher costs due to larger staffing, and larger loan-loss provisions reflecting weaker asset quality. These results seem to reflect both operational inefficiencies and policy mandates. Taken together, the results do not reject the development role of state banks, but show that their policy interventions come at a cost. As such, the article argues that there is scope to reduce the share of state banks in some MENA countries and to clarify the mandates, improve the governance, and strengthen the operational efficiency of most state banks in the region.

Using a database of more than 1,300 firms from six countries in the MENA region, we study the impact of financial development on the relationship between trade credit on the one hand and bank credit access and firm-level characteristics, especially financial health, on the other hand. Trade credit use increases with the difficulty for gaining access to bank credit, and indicators of the quality of the firm’s financial structure negatively influence the use of trade credit. Additional investigations tend to suggest that increased financial development significantly reduces the substitution relationship between trade credit and bank credit and more generally decreases the influence of most firm-level determinants for trade credit usage. These results are plausibly explained by a demand-driven story: when bank credit access gets increasingly difficult, or when financial health deteriorates, the demand for trade credit increases. Similarly, when financial development increases, firms have better access to bank credit, and impact of this variable (or financial health proxies) on the demand for trade credit becomes less or not significant.

The article examines whether banks’ funding structure amplifies procyclicality. Using data for GCC banks for the period 1996–2009, the evidence suggests that banks with higher wholesale dependence cut back lending by a greater amount. In addition, the procyclicality of the financial system and the crisis exacerbates the effect, although the results differ across bank ownership. Robustness checks lend credence to these findings.