macro-economic issues(b) r&w chapters 7-9, 13 plus pp. 133-142 of 5 link to wdi link to syllabus

Macro-Economic Issues(B) R&W Chapters 7-9, 13 plus pp. 133-142 of 5 Link to WDI Link to Syllabus

Tariffs and Trade Policy

Unweighted Import Tariff Rates-Regions SAR: South Asia, SSA: Sub.Sah. Africa, ECA: East Asia Source: World Bank: Trade Investment and Development in MENA Figure 3.1

Theory of Tariffs A tariff is a tax on imports, whose economic effects are to raise the domestic price, increase domestic production, and lower imports. Standard theory says tariffs are harmful because they lead to an inefficient production. They also have secondary negative effects on other production, such as exported products. The famous argument in favor of tariffs is called infant industry, in which activities are protected for a while, as they grow and mature. This is quite controversial: Japan and Korea can be cited in favor, while there are many negative examples, in MENA and elsewhere. Perhaps it worked in Turkey, although that country has liberalized. The average tariff is difficult to measure.

Trade Policy Indicators Source: Dasgupta et al., Reform and Elusive Growth in the Middle East MENA behind LAC and East Asia

MENA Tariffs ECA4 Central Europe & Turkey EAP5 East Asia Source: World Bank Trade, Inv. and Development Simple Weighted Standard Average Average Deviation

Long Term Trends in Trade Integration: World and MENA Source: World Bank: Trade Investment and Development in MENA Figure 2.2

Intra-Industry Trade Ratio in MENA Source: World Bank: Trade Investment and Development in MENA Figure 2.7 p. 81 Index for all manufactures, in 1988 and 2000. Higher numbers indicate more integrated trade. MENA has low levels.

Export Diversification of MENA (late 1990s) The smaller the number, the more diversified

Inter-regional trade among ESCWA

Mfg Exports/Total Source: WDI MENA

Mfg Exports/Total - MENA Source: WDI Israel Tunisia Turkey Jordan Moroc (fewer countries on the next slide)

Mfg Exports/Total MENA - shorter

World Market Share of Textiles and Garments Source: World Bank: Trade Investment and Development in MENA Figure 1.7 MENA is way behind.

Share of World Exports of Services: MENA and Other Regions Source: World Bank: Trade Investment and Development in MENA Figure 2.10

Free Trade Agreements Involving MENA Countries IsraelEUTurkeyEgyptJordanGCCAlgeriaMorocTunLebLibyaBahrOman USA198520012006xx Israel\xx2004 EU\?EUAAx x No! Turkey\xxx Egypt\ Jordan\xxx GCCxx Most MENA countries are members of the World Trade Organization: Algeria, Iraq, Iran, Lebanon, Libya, and Yemen are negotiating accession, and only Syria is not actively seeking entry. Jordan also has FTA type agreements with Syria, Kuwait, and Singapore. Israel has FTAs with U.S., Canada, Mexico, and several other countries Turkey and the EU have an agreement which involves significant reduction of tariffs (everything but agriculture), but does not include Turkeys membership in the EU EUAA Association Agreement to the European UnionMediterranean FTA - is a proto-FTA of the EU with the Mediterranean countries, also involving foreign aid, investment regulations, and similar arrangements. The Greater Arab Free Trade Area (1997) is a work in progress.

Merkel to repeat offer to Turkey of EU "privileged partnership" Deutsche Press-Agentur - Sunday, March 21, 2010 Eds: Merkel to visit Turkey on March 29-30 Berlin (dpa) - German Chancellor Angela Merkel will offer Turkey alternatives to full European Union (EU) membership during a visit to Turkey later this month, she said in a media interview on Sunday. "I am of the opinion that we should rather aim for a privileged partnership, in other words a very close affiliation of Turkey to the European Union, Merkel told Deutschlandfunk radio. Turkey has previously rejected similar statements by the German chancellor, calling them "unacceptable." Progress has been sluggish on Turkish EU accession talks, which began in 2005. Merkel 's two-day visit to Turkey begins March 29. Her trip will focus on the European Capital of Culture, Istanbul. The chancellor is also due to discuss the integration of German immigrants of Turkish origin with Prime Minister Recep Tayyip Erdogan.

Euro-Med Agreements: WB Source: WB (2003) Trade and Investment pp. 208-209

Jordan Times on Vietnamese Womens Strike in Jordan: March 2008 Link to articlearticle Link to site on QIZs http://www.jordanecb.org/investment_qiz.shtmQIZs

QIZ Vietnamese workers refuse to end strike By Hani Hazaimeh SAHAB - A total of 176 Vietnamese women at a Taiwanese-owned apparel manufacturing company in Al Tajamouat Industrial Estate are still on strike demanding a pay increase. Upon the work stoppage on February 10, the workers linked their return to a W&D Apparel Corporations consent to increase their monthly salary from $175 to $265 per month and a basic eight-hour workday. The factory owner said the demand contradicts employment contracts they had signed. He accused some strikers of exercising violence and sabotage. When the company refused to meet their conditions, they started rioting and sabotaged some of the companys properties. The management had no choice but to call police to restore order, James Shen, W&D general manager, told The Jordan Times yesterday. Some of the strikers stole mechanical parts from sewing machines to prevent the company from hiring other workers to replace them, he charged. He added that the management has met with 10 representatives of the strikers, but the two sides reached no agreement although the managers offered some compensation. He explained that the financial compensation was paid for those who had worked overtime hours and were the most productive. Those were satisfied with the compensation and wanted to go back to work. But those who did not get compensation threatened them, Shen claimed. Thirty-year-old Di Thi Wei, one of the workers, upheld his claim. She told The Jordan Times that she accepted the compensation and decided to go back to work despite the strike leaders threats. The company moved us to a different place to protect us from being assaulted by the strike leaders, she added. Di Thi was one of the 85 women who resumed work, said the general manager, noting that the company had to rent new dormitories to ensure their safety. Echoing her colleagues words, Nguyen Thi Tuoi, 26, said she was beaten badly by the strike leaders for going back to work before she moved to the new dorms. They even poured cold water on me while I was sleeping in bed in the middle of a cold night, she told The Jordan Times. They tore my clothes and my shoes and I had to borrow clothes from another worker. QIZ Vietnamese workers refuse to end strike Vietnamese female workers who ended a strike at a QIZ factory have a meal on Tuesday at a makeshift canteen where they eat separately from 176 colleagues who are still on a strike (Photo by Hani Hazaimeh) Jordan Times: March 5, 2008

Qualifying Industrial Zones QIZ's Israeli Min of Industry http://www.tamas.gov.il/NR/exeres/2124E799-4876-40EF-831C-6410830D8F02.htm Background on Qualifying Industrial Zones (QIZ's) In 1996, U.S Congress authorized designation of qualifying industrial zones (QIZ's) between Israel and Jordan, and Israel and Egypt. The QIZ's allow Egypt and Jordan to export products to the United States duty-free if the products contain inputs from Israel (8% in the Israeli- Jordanians QIZ agreement, 11.7% in the Israeli-Egyptian QIZ agreement). The purpose of this trade initiative has been to support the prosperity and stability in the Middle East by encouraging regional economic integration. In order for a QIZ article to gain duty-free entry, QIZ factories must add at least 35 percent to the value of the article. This 35 percent minimum content figure can include value added in Israel, Egypt/Jordan, or the United States. QIZs must encompass portions of Egypt/Jordan and Israel, though the areas do not have to be contiguous. The immediate saving for an investor in the QIZ is the amount of the U.S. tariff on any specified good. Generally speaking, U.S. tariffs on clothing and textile goods are relatively high, which makes production of these goods in QIZs especially attractive. QIZ with Jordan Since 1998, the United States has designated thirteen QIZs in Jordan; On March 6th, 1998, the United States Trade Representative (USTR) designated Jordan's Al-Hassan Industrial Estate in the northern city of Irbid as the world's first QIZ. Other industrial parks designated by the U.S. government as QIZs in Jordan include; the Al-Hassan Industrial Estate (Irbid), and Al-Hussein Ibn Abdullah II Industrial Estate (Al Karak), both owned and operated by the Jordan Industrial Estate Corporation. Also, the now privately owned and operated Al-Tajamouat Industrial Estate (Amman), Ad- Dulayl Industrial Park (near Zarka), Jordan Cyber City (Irbid), Al- Qastal Industrial Zone (Amman), and El-Zai Ready-wear Manufacturing Co. sub-zone (Zarqa). Other QIZs expected to be operational in the near future include the Gateway QIZ (northern Jordan-Israel border), Aqaba Industrial Estate (Aqaba), and the Mushatta International complex (Amman). Benefits of QIZ with Jordan

Data from Kandeel: Arab Studies Quarterly 2008 End of 2006, 54,062 people were employed in Jordans QIZ. 31% of them were Jordanians. Total labor force in Jordan was 1,900,000. So QIZs employed 1% of Jordanians.

Foreign Investment Distinguish between Foreign Direct Investment (FDI) which provides foreigners with control, compared to Portfolio Investment (loans and non-controlling stock investments) which do not. Since around 1960, more money goes overseas as Portfolio investment than as FDI. Either of these terms can be inward or outward.

US: International Investments/GDP Data source: US DoC US is a net importer of portfolio capital, and a net exporter of FDI.

Debt Data

Table 8.2 p. 214. External Debt, 1994 and 2004

Debt/GDP Jordan Syria Egypt Lebanon Data source: WDI

Gulf Currency Union

Gulf Currency Union Saudi Arabia, Kuwait, Qatar, Bahrain: UAE? Oman? The most important example of a currency union is the euro in the EMS. Monetary integration is feasible if the countries have similar rates of inflation, and presumably would be implemented after the countries had maintained fixed exchange rates among themselves. (Theory is called optimum currency area.) The Gulf countries have relatively free capital markets, effectively free trade, and fixed exchange rates (except Kuwait). One aspect of a GCC Currency Union would be a complete integration of capital markets stock markets and investment banking. Also, no transactions commissions. A major drawback of monetary integration is that it reduces the economic independence of the individual countries. In the Gulf, it would accentuate dependence on Saudi Arabia. One also wonders about the Sovereign Wealth Funds. Other reasons given for non-agreement in the GCC: location of the bank; the issue of pegging to the dollar, a basket ($, , , ), or floating.

Inflation in GCC

Sovereign Wealth Funds Government Owned purchases of financial instruments in other countries. Implications: Reduce domestic inflation Spread out bonanza from oil or other raw material Reduce domestic instability caused by unstable world prices Puts these countries on the map of international finance Indicates that these countries are growing more sophisticated in their economic policy (while US and Europe are declining in our ability to throw our weight around)

Foreign Assets/GDP: Oil Exporters, 2007 (Data in billion US$) Overseas Assets GDPRatio UAE9001874.8 Saudi Arabia6003721.6 Kuwait3001092.8 Qatar100621.6 This Ratio for Norway would be 1.1 1.5. Sources: Estimates on overseas assets referring to 2007-, from Setser and Ziemba, Understanding the New Financial Superpower- The Management of GCC Official Foreign Assets, RGE Monitor Dec. 2007. GDP estimates (for 2007) from EIU Monthly Reports. Link to Sovereign Wealth Fund Institute online www.swfinstitute.orgonline

Size of SWFs Saudi Arabia (SAMA) ~ $400b Source: Legrenzi and Momani (2011) Shifting Geo-Economic Power of the Gulf

SWF Strategy and Transparency Source: Sovereign Wealth Funds Institute

Accumulated Stocks of FI for Oil Exporters. (Stocks as % of GDP) Estimates, using as the basic data source International Financial Statistics

Foreign Direct Investment

Quick Review of Theory of Foreign Investment Distinguish Direct Investment (control) from Portfolio Investment (Loans) Direct Investment because of special advantage of Investing Company: Technology, Trademark/Patent, Operational practice, Access to credit or external markets, protection of home country Attraction of country: low wages, availability of resources, tax benefits, access to market Profit rates, wages, import reliance, etc. will be higher for FDI company Benefits will decline over time (product cycle) FDI will be either market seeking or resource seeking. This theory is an alternative to the theory that FDI seeks to exploit.

Share of FDI Inflows p. 182 Source: World Bank (2004) Unlocking the Employment Potential in the MENA page 182

FDI Potential Source: World Bank: Trade Investment and Development in MENA Figure 1.18

Openness to FDI in Services, by Regions, 2004. SE ASIA West Asia (MENA) South America Central and Eastern Europe Source: UNCTAD World Investment Report, 2007 Closed Open East Asia

Source: WDI, in OPECFDIRev2.xls

IDP Source: UNCTAD: World Investment Report, 2006

Recent FDI From West Asia Source: UNCTAD World Investment Report, 2007 From Kuwait and UAE, to Turkey, Saudi A, and UAE

West Asia: M&As, by Sector Mostly in Services! Source: UNCTAD World Investment Report, 2007

Turkeys FDI in Egypt Link to articlearticle (or, next slide)

Turkey Sets Up Its First Industrial Park in Egypt Turkey sets up its first Industrial Park in Egypt By Sherine El Madany First Published: January 17, 2008 AFP PHOTO/ KHALED DESOUKI CAIRO: After signing a free trade agreement in 2005 that was dubbed a turning point in relations between two regional powers, it was only a matter of time before Turkey established its first private industrial park in Egypt. Turkish President Abdullah Gul inaugurated Wednesday The Polaris industrial park, the first of its kind in Egypt, with investments totaling $1.5 billion. The private industrial park is a joint venture between the two countries that is estimated to attract $4 billion of investments in the next four years. Trade ties between the two countries have already been on the rise since [ratification] of the FTA, said Minister of Trade and Industry Rachid Mohamed Rachid in a press statement. The majority of Turkish investments in Egypt seek to export to foreign markets, especially in Europe, the Middle East and Africa, as well as benefit from partnership agreements between Egypt and Europe, allowing preferential advantage of products manufactured in Egypt to enter these markets without customs, he added. Sprawling two million square meters in the Sixth of October City an area fit to host some 300 companies and factories the cluster will include Turkish manufacturing operations from a number of sectors including textile and ready- made garments, furniture, automotive, glass, and food processing. The ministry expects total production capacity to reach $3.54 billion per year. Gul, who started an official visit to Egypt on Tuesday, told Reuters that recent economic reforms in the Arab country spurred interest from Turkish investors.

Saudi investors demand their $12 billion invested in Egypt be protected Author: Egypt Independent March 17, 2012 Saudi businessmen have said that Egypt has responded positively to demands that their investments in the country be protected, reported Saudi paper Al-Eqtisadiah on Saturday. Saudi investments in Egypt are estimated as being worth around US$12 billion, of which $4 billion worth are facing major problems, the paper said. It quoted a Saudi businessman in Egypt as saying that during an upcoming meeting between the Saudi-Egyptian Business Council and the Egyptian People's Assembly speaker, the investors will list their grievances and the rights they have been deprived of without compensation since the Egyptian uprising began. A large community of around 700,000 Saudis live in Egypt. According to the newspaper, Saudi investors in Egypt believe that their rights have been disregarded after the government revoked their contracts, considering them null and void.

Privatization, and Equity Market Reform

Privatization Proceeds Source: Dasgupta et al., Reform and Elusive Growth in the Middle East

Cumulative Privatization Proceeds/GDP (%), 1988-2003 Egypt6Qatar3 Jordan11Saudi A.2 Lebanon1Tunisia4 Morocco19Turkey3 Oman3 Positive but < 0.5 Algeria, Bahrain, Iran UAE, Yemen. Presumably zero elsewhere (e.g. Libya, Syria). Source: Privatization proceeds from WB Privatization database http://rru.worldbank.org/Privatization/; GDP from WDI

Stock Market data Source: Neaime (2006) Thunderbird Review

Market Capitalization/GDP Source: WDI. Missing are data from Algeria, Iraq, Syria, Yemen Lebanon US Jordan Iran

Syria Finds Right Ingredients to Start a Stock Market From Scratch April 2, 2009 New York Times/Damascus Journal By ROBERT F. WORTHROBERT F. WORTH DAMASCUS, Syria A different Syria, a good Syria, say the huge, glossy Billboards that have begun appearing all over this city. The signs are not about political reform, or this countrys much-touted re-engagement with the West. Instead, they are advertisements for the new Damascus Securities Exchange, which opened last month on a hillside on the edge of town. It may seem a little quixotic to open a stock exchange in the middle of the worst global financial crisis in decades. For the moment, it looks more like a sleepy college library than a booming bourse, with trading indirectly controlled by the government only five hours a week and share price fluctuations limited to 2 percent per day. There are only six stocks on the market, and in the first weeks, only one was traded. But for many Syrians, the fledgling exchange represents a long-deferred dream of economic liberalization and prosperity after decades of socialism and isolation.

Telecommunications Liberalization in MENA Source: World Bank: Trade Investment and Development in MENA Figure 5.6

Incidence of Energy Subsidies in Iran, Urban vs. Rural p.64 Source: World Bank/Farrukh Iqbal (2006) Sustaining Gains in Poverty Reduction MENA page 64

Defense and Armaments Chapter 13 of R&W

MENA Military Expenditures. Table 13.2 p. 352. See next slide.

World Defense Expenditures, 1999 (US$ billion)(US$ million)(US$mill) World852Algeria1,830Oman1,780 W. Europe188Egypt2,390Qatar1,060 Middle East55Iran6,880Saudi A. 21,200 Africa20Iraq1,250Syria 4,450 China89Israel8,700Tunisia 357 India11Kuwait2,690Turkey 9,950 Russia35Lebanon653UAE 2,180 USA281Morocco1,450Yemen 374 Source: US Arms Control and Disarmament Agency, World Military Expenditures and Arms Transfers 1999-2000

R&W Fig. 13.2 p. 353. Military Spending in MENA, 2000s U.S. military spending is listed as $518 billion.

Military Spending as % of GDP. Fig. 13-1 p. 350. As a region, MENA has highest ratio. Slight decline between 1993 and 2004 for all countries.

Defense Expenditures/GDP, Regions Source: WDI

R&W Table 13.1 p. 351. Relative Weight of MENA Military

MENA: Military Expenditure/GDP, % Source: WDI (2006) General trend towards a decline. High in Saudi, Kuwait, Oman, Israel, Jordan. Lower in Tunisia, Iran, Algeria

MENA: Military Expenditure/Govt UAE Jordan Iran Turkey Source: WDI Oman

Article on $60b arms sale to Saudi Arabia: NYT Sept. 18, 2010 Obama Is Said to Be Preparing to Seek Approval on Saudi Arms Sale. President Obama is preparing to seek Congressional approval for a huge arms sale to Saudi Arabia, chiefly intended as a building block for Middle East regional defenses to box in Iran, according to administration and Pentagon officials. The advanced jet fighters and helicopters for Saudi Arabia, long a leading customer for these weapons, could become the largest arms deal in American history, and one significant enough to shift the regions balance of power over the course of a decade. The key element of the sale would be scores of new F-15 combat aircraft, along with more than 175 attack and troop-transport helicopters and, if subsequent negotiations are successful, ships and antimissile defenses. The deal has been put together in quiet consultations with Israel, which has sought assurances that it will retain its technological edge over Saudi forces, even as Saudi Arabia improves its ability to face down a shared rival, the Iranians.

Tech. Composition of exports of Lebanon and other MENA

Trade to GDP Ratios in MENA Source: World Bank: Trade Investment and Development in MENA Figure 2.3

Hirschman Export Concentration Index LAC-Latin America, EAP5 East Asia, ECA3 Europe. Source: World Bank, Trade Investment and Development

Tourism/GDP: MENA and Other Regions Source: World Bank: Trade Investment and Development in MENA Figure 2.8

Bush kicks off new round of free-trade talks in the Middle East U.S. president seeks to create FTAs with every nation in the region by 2013 By Agence France Presse (AFP) Compiled by Daily Star staff Friday, March 11, 2005 The Bush administration, seeking to provide economic support for its efforts to spread democracy in the Middle East, launched a new round of free-trade talks in the region this week while an Egyptian official said Wednesday he believed his country's own negotiations with the United States would start soon. Egyptian Trade Minister Rashid Mohammed Rashid described his meeting in Washington with Acting U.S. Trade Representative Peter Allgeier in optimistic terms, saying he was hopeful that free-trade talks with the United States would begin "in the near future." "We do not have a specific date for when we can start negotiation of an FTA (Free Trade Agreement). But we are both moving on the right track," Rashid said in describing his talks with Allgeier. The Bush administration is pushing to strike free-trade deals with a number of countries in the Middle East as a prelude to Bush's ultimate goal of creating a free-trade area throughout the region by 2013. The hope is that greater trade with the United States will bolster economic growth in the region and help support Bush's goals of fighting terrorism and spreading democracy in that part of the world. The administration currently has free-trade agreements in that area of the world with Israel, Jordan and Morocco. A free-trade deal negotiated last year with Bahrain is pending congressional approval. The administration has delayed starting talks with Egypt until the country makes further economic reforms. Rashid argued that the country is moving quickly to implement a wide range of economic reforms and a free-trade agreement with the United States would help promote even greater reforms.

Tax rates Source: Dasgupta et al., Reform and Elusive Growth in the Middle East

Class Composition in Iran, 1976-2006 Source: Behdad and Nomani (2009) What a Revolution! Thirty Years of Social Class Reshuffling in Iran, Comparative Studies of South Asia, Africa and the Middle East 29:1

Other Fiscal Issues

MENA: Govt Fiscal Balance Source: World Bank (2006) Economic Development and Prospects: Financial Markets in a New Age of Oil page 112

Food Subsidy Costs p. 60 Source: World Bank/Farrukh Iqbal (2006) Sustaining Gains in Poverty ReductionMENA page 60

Relative size of Military Expenditures Source: Cordesman (2004) Military Balance in the Middle East

Decline of Real Military Deliveries, 1985-1999 Source: Cordesman (2004) Military Balance in the Middle East Would seem to be US aid.

Excerpt from US Embassy Site on Jordan FTA http://usembassy-amman.org.jo/QIIZ.htm QUALIFYING A PRODUCT Q: How does the FTA affect the Qualified Industrial Zone (QIZ) initiative?FTA A: The FTA does not supersede or eliminate the QIZ initiative. The QIZ initiative currently grants immediate tariff and quota-free access to the U.S. market to goods that are produced in the QIZs and meet specific rules of origin requirements. Under the FTA, tariffs and quotas for many goods are phased out over time, and rules of origin require 35% Jordanian content. Thus for some high-tariff goods, producing in QIZs will retain an advantage.FTA For instance, many apparel goods face U.S. tariffs of up to 30%. Under the FTA, tariffs on these goods would be reduced over ten years, and Jordanian exports would have to meet the 35% Jordanian content level. Under the QIZ initiative, those same goods would enjoy immediate elimination of tariffs and quotas, and would require a lower level of Jordanian inputs. Thus in this case, QIZ-produced products would enjoy a comparative advantage. Q: Who qualifies products for duty free entry in the United States? What information is required? A: A committee consisting of Jordanian and Israeli government officials determines whether products are eligible for duty-free treatment. The manufacturer must provide detailed information about the costs of materials and labor to prove that the product fulfills QIZ production requirements.

Morocco: Employment Growth and Manufactured Exports Source: World Bank: Trade Investment and Development in MENA Figure 1.23

US-Jordan FTA: WB Source: WB (2003) Trade and Investment p. 208

Link to discussion of QIZs and FTA with US Click http://www.tamas.gov.il/NR/exeres/2124E799-4876-40EF-831C-6410830D8F02.htm

Link to data on Recent FDI into MENA LinkLink http://www- personal.umd.umich.edu/~mtwomey/econhelp/344files/Table18%20International%20Finance.doc

Link to FDI Table 17: 20 th Century FDI in MENA LinkLink http://www-personal.umd.umich.edu/~mtwomey/econhelp/344files/Table17EarlyFI.doc

macro-economic issues(b) r&w chapters 7-9, 13 plus pp. 133-142 of 5 link to wdi link to syllabus

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