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8 CHAPTER 2


solid economic growth (above 3 percent in per capita GDP) during the 1990s. While Tunisia continued to enjoy solid growth in 2000–06, joined by Jordan and Morocco, Lebanon and the West Bank and Gaza experienced a sharp slowing of their economies due to conflict. Most regions experienced higher growth over 2000–06 than in the 1990s, but growth in the MENA region barely increased. During 2000–06, growth in the MENA region was comparable to that in Sub-Saharan Africa and lagged behind growth in South Asia and in East Asia and the Pacific (see Table 1.1).


Various hypotheses have been advanced for the relatively weak growth rates among the MENA countries: • Conflict: While some of our selected countries have known relative stabil- ity, many have been affected by the Israeli–Palestinian conflict, the Iraq war, and the 2006 conflict between Hezbollah and Israel in Lebanon. For example, Lebanon’s economy went from a strong growth rate (6 percent) in 2004 to negative growth (–1 percent) in 2006 (World Bank 2008b). Conflicts have direct costs in terms of lives and property, but they also destroy social capital (Collier 1999). Moreover, conflicts create a climate of uncertainty and discourage investment.


• The policy and regulatory environment: In 2005, the International Finance Corporation (IFC) of the World Bank started ranking countries annually on the ease of doing business within them based on 39 indicators grouped into 10 categories. The categories include starting a business, dealing with construction permits, employing workers, registering property, obtaining credit, protecting investors, paying taxes, trading across borders, enforc- ing contracts, and closing a business. While on average the MENA region is on an upward trend with regard to the ease of doing business, only one country, Tunisia, is ranked in the top half. On the other hand, Syria ranks in the bottom 25 percent of all countries (IFC 2009).


• Trade barriers: High import barriers in the region distort economic incen- tives and impede the flow of new technology, thus reducing productivity growth. As discussed later, import protection is higher on average in the MENA region than in other developing countries. In Morocco and Tunisia, agricultural import tariffs are 30 percentage points higher than the aver- age for other developing countries.


A serious economic problem facing many of the MENA countries is un- employment. Reflecting the low rates of economic growth combined with the rapid population growth in some countries, the unemployment rate averaged 14 percent for the MENA region, higher than in other developing regions. A recent report summarized the situation as follows:


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