The relationship between growth rate and per capita

income level in the MENA region

Realized by:

BENALLAL Omar

BIYADI Sami

LACHAAL Mohamed Amine

MAALOUM ARRAHALI Basma

SABIRI Yassir

Supervised by:

AAYALE Jihane PhD.

01/05/2020
 Acknowledgement

Such a study cannot be carried out effectively without support. Thus, it is with a
huge pleasure and gratitude, that we express our most cordial thanks to all the people
who contributed from near and far to the preparation of this report under the best
conditions. Our respectful and modest thanks are especially addressed to Mrs.
AAYALE Jihane for giving us the opportunity to apply our achievements in
macroeconomics and descriptive statistics to a real study.

Indeed, being students of management sciences as well as inhabitants of the

region studied, this study concerns us closely. We hope that our results and this report
will be considered as a serious contribution to the academic and scientific world,
considering the effort that the members of the group have devoted to finalize the work.
 Abstract

We will be presenting in this case study a general description of the economies

of the MENA region to have a general idea concerning the specific characteristics of
each one of them, as well as to understand the evolution of their GDPs and their per
capita revenue. Afterwards, we will study the statistical correlation between the two
concerned variables, empirically expressed in terms of real GDP growth and GDP per
capita. The result of the said correlation will be slightly positive and close to nil value,
which neither confirms nor disproves the original hypothesis of the Solow growth
model.

The reasons for such a result could be due to the fact that MENA economies,
unlike modern western economies, are further from different from the neoclassical
model of capitalist economies, all else being equal. In the second part of the study, we
will be discussing how the fact that the GDPs of the MENA countries are not distributed
normally, which deprives us of the possibility of having a dependence test between
statistical variables.
 Summary

Acknowledgement ................................................................................................................................2
Abstract..................................................................................................................................................3
Introduction ...........................................................................................................................................5

I- Evolution study and correlation ........................................................................................................6

1- Evolution by country ...................................................................................................................6

2- Correlation of the two variables..................................................................................................16

II- Statistical dependency test ..............................................................................................................17

1- GDP normality test .....................................................................................................................17

Conclusion ...........................................................................................................................................19
Webography/Bibliography. ..................................................................................................................20
 Introduction
One corollary of the Solow model of exogenous growth shows that the relationship between
growth rate and per capita income level is negative. This result was confirmed for a sample of
the 20 richest countries in the world in 1960, according to a case of the course. The objective
of this study is to verify this negative relationship the growth rate and income per capita for the
countries of the MENA region (Middle East, North Africa). The empirical framework we use
focuses on two central variables: the rate of economic growth and the per capita income rate.
Since the Solow model is characterized by its simplification of economic reality by eliminating
several variables that hinder neoclassical modelling, we will remain faithful to this spirit of
simplification by taking as empirical variables the rate of growth of GDP on the one hand and
the rate of GDP per capita. We choose to use GDP per capita instead of National Gross
Disposable Income as a measure of per capita income for the simple reason that the Solow
model excludes the rest of the world from its analysis, to eliminate the external effect on any
economy.

Since GDP is not distributed equally among the population of a country, we know that this
study will not really reflect the well-being of the population. However, we are interested in the
behaviour of the two statistical variables without taking into account either the way they are
distributed within the economy or the social effects of these distributions. The lack of
information concerning certain countries such as Syria and Yemen because of their political
situations forces us to eliminate them from this study.

This study will be carried out in two main parts; the first is a study of the evolution of the two
variables concerned for:

Ø For each of the countries concerned.

Ø For the aggregated rates of the countries of the region.

In the second part, we will look at the distribution of the two variables by performing a
normality test. Its result will allow us to carry out a comparative study between the two
variables so that we can predict their fate more reliably than a simple correlation study.

Statistical tests, correlation studies and normality tests will be carried out by suitable tools such
as the IMF Data mapper, Ms. Excel and IMB SPSS. Details of calculations and graphs are
provided as the study progresses. We start from the following basic hypothesis:
“The correlation between GDP growth rate and per capita income is negative.”
I- Evolution study and correlation:
1- Evolution by country:
Qatar:
Qatar’s economy is one of the world’s fastest growing economies with a rate of 18.9% between
2000 and 2004. Qatar joined the WTO on January 13, 1996. With a population of around 2
million, Qatar represents a small market. Hydrocarbon production provides a comfortable
income, yet the Qatari state is trying to diversify its economy through numerous investments
outside the country. The tiny emirate gradually swallowed up the jewels of the world economy.
A financial mastodon, he also distributed his largesse to the inhabitants, who enjoyed a high
standard of living.
In 2001, Qatar’s GDP (PPP) exceeded $10.6 billion, or $18,789 per capita. With such figures,
and a HDI of 0.826, Qatar was a rich country, but less than many Western states.
In 2013, with a GDP (nominal) of US$105,000 per capita, Qatar moved to the top of the world
due to its income from hydrocarbons and the successful conversion of its economy. Qatar is
becoming less and less dependent on its oil.
Evolution of the GDP growth rate in % of Qatar from 1980 to 2019

Emirates:
The economy of the United Arab Emirates, founded at the beginning of the century on pearl
fishing and maritime trade, was transformed by oil exploitation. Recent increases in oil prices
and lower credit costs have led to higher prices for movable goods (shares traded on the local
market) and real estate. This, in turn, has eroded the attractiveness of the UAE to investors.
Dubai, in particular, is a regional financial centre for many multinationals. The economy
depends largely on immigrant labour.
 Evolution of the GDP growth rate in % of the UAE from 1980 to 2019

Oman:
Oman’s economy is dominated by its dependence on oil. A joint venture called IPC drilled a
large number of boreholes from 1956, despite logistical problems caused by a lack of transport
infrastructure.
Today, Oman produces about 700,000 barrels (110,000 m3) of oil per day and a number of
significant natural gas deposits have been discovered. Oil represents about 90% of exports.
However, oil extraction has been declining (by about 4% per year) since 1997, when Yibal saw
its production collapse. In contrast, gas production is on the rise.
Oman’s economic performance improved significantly in 2000, mainly due to higher oil prices.
The government is moving forward by privatizing its industry, developing trade legislation to
facilitate foreign investment, and increasing its budgetary spending. Oman continues to
liberalize its market and joined the WTO in November 2000. GDP improved in 2001 despite
an overall slowdown in the economy.
Evolution of the GDP growth rate in % of Oman from 1980 to 2019
Morocco:
Morocco’s economy is a market economy of liberal inspiration. The State nevertheless plays a
significant role in the economic emergence of the country with its industrialization strategy.
Morocco’s GDP grew at an average annual growth rate of 4% over the last decade and reached
USD 298 billion in 2017 (in purchasing power parity).
Morocco is the third largest producer and exporter of phosphates in the world, with a significant
foreign exchange inflow. It has by far the world’s largest reserves with 50,000 billion tones.
The major reforms and major projects undertaken by the country have produced good results,
particularly with the continuous increase in GNP, even during the bad agricultural seasons due
to periods of severe drought.
The Moroccan economy now has a sound macroeconomic framework that can be an effective
lever for achieving the objectives of sustainable growth, the reduction of unemployment13 and
poverty reduction, which is around 5%. According to the Ministry of Economy, Morocco
recorded inflation of 1.6% in 2015 and growth of 4.8% driven by a good agricultural year, a
figure higher than the forecasts of the 2015 Finance Law, which expected a growth of 4.4%.
Evolution of the GDP growth rate in % of Morocco from 1980 to 2019
Egypt:
At the crossroads of civilizations, Egypt is in 2017 the leading economic power of the African
continent in terms of PPP GDP and the third if we take nominal GDP, just behind South Africa
and Nigeria. Due to the desert climate of the country, most of the human and economic activity
is concentrated along the Nile. Egypt has a diversified economy unlike many African countries,
so for example in 2015, 16% of GDP was due to manufacturing sectors, 12% to extractive
sectors (including exploitation of oil- like natural resources) 13% to wholesale and retail, etc.
The government has undertaken reforms over the past 30 years to reduce the strong
centralization inherited from President Nasser.
Egypt’s policy of reforms and economic opening between 2006 and 2008 allowed for record
high growth rates of 7% a year, this could probably have continued over a longer period had it
not been for the Subprime crisis. Despite this, 40% of the population remained below the
poverty line, which led to an unstable political and civil situation that led to a revolution.
Evolution of the GDP growth rate in % of Egypt from 1980 to 2019.

Iraq:
An economy impacted by security and defence spending and leaves too much dependence on
oil. Despite an improved security situation and favourable oil indicators. Budgetary
adjustments will probably have to be made so that Iraq can continue to benefit from bilateral
and multilateral aid, particularly in the context of its reconstruction programme, which is
estimated at more than USD 100 billion over the next ten years.
The country has been facing a multi-faceted crisis for several years: political, security,
economic and fiscal (the relative decline in oil revenues and the priority given to military and
security spending weigh heavily on public finances).
 Evolution of the GDP growth rate in % of Iraq from 1980 to 2019

Israel:
The Israeli economy is based on a modern capitalist system of a young country characterized
by a relatively large public sector and a rapidly growing high-tech sector. Israeli companies,
mainly in this field, are highly valued in the global financial markets: Israel is the second
country in number of companies listed at NASDAQ, after the United States.
In 2010, Israel officially joined the OECD. In addition, with 140 engineers per 10,000
inhabitants, Israel is the country with the highest engineering concentration (compared to 88
for Japan and 85 for the United States) in the world.

Evolution of the GDP growth rate in % of Israel from 1980 to 2019.

Jordan:
Jordan is a small country with untapped natural and especially water resources. General debt,
poverty and unemployment are recurring problems. King Abdullah II, who has led the country
since 1999, has undertaken long-term economic reforms to address the most important issues
and improve living conditions. Jordan worked closely with the IMF from 2003 to 2006,
practised a strict monetary policy coupled with a major privatisation programme. The
government has also liberalized the trade regime sufficiently to secure possible participation in
the World Trade Organization (2000), a trade agreement with the U.S. (2001), and a
cooperation agreement with the European Union (2001).
These measures increased productivity and involved foreign investment. Jordan imported most
of its oil from Iraq, but the 2003 Iraq War made it more dependent on other oil-producing
nations, forcing the Jordanian government to raise the price of oil at retail and taxes. Jordan’s
export market, which is heavily dependent on exports to Iraq, has also been affected by the war
but is rebuilding rapidly by contributing to Iraqi reconstruction. The biggest challenges facing
Jordan were to do without financial aid, to reduce the budget deficit, and to create investment
aid to boost employment.
Evolution of the GDP growth rate in % of Jordan from 1980 to 2019

Iran:
The Iranian economy combines strong state participation in oil and large enterprises (heavy
industry, consumer goods...), a five-year planning system and village agriculture and small
businesses. The state complements its control of the economy with subsidies on basic
necessities, gasoline and public services. The share of the informal economy is quite large.
Iran, with a GDP of 990 billion dollars (PPP, 2011), ranks second in the region (behind Turkey),
and with a GDP of 482 billion dollars (nominal, 2011), ranks third in the region (behind Turkey
and Saudi Arabia). Country’s main revenues are from the sale of oil and natural gas.
Lebanon:
The civil war from 1975 to 1990 severely damaged Lebanese economic structures, halving
national wealth, and relegating the country to the rank of a mere petrodollar safe in the Middle
East. However, peace has helped the government to regain control of the country, particularly
in the Beirut region, the capital, by starting again to collect taxes and by reopening the city’s
ports and international airport. As a result, GDP per capita increased by 353% in the 1990s.
Moreover, over the same period, Lebanon is in 7th position in the world for average annual
growth. The economic recovery of countries was strongly helped by a strong banking system,
the dynamism of several family Smes, foreign aid, and foreign investment, especially French.
Saudi Arabia:
Saudi Arabia’s economy is mainly based on its oil industry, which has changed the country’s
economic history. Thus, since 1938, Dhahran (a city located east of Saudi Arabia along the
Persian Gulf) has become the capital of Arab oil.
In contrast, Saudi Arabia’s agriculture has steadily declined since the 1960s before receiving
government aid. Saudi Arabia is a member of OPEC. Between 1977 and 1981, national income
directly from oil revenues alone exceeded $300 million a day, fuelling the investment policy
of the country’s leaders by billions of dollars. These investments are reflected in five-year
plans, through the allocation of state budgets.

Algeria:
The economy of Algeria deals with the cyclical and structural economic situation of Algeria.
Since its independence in 1962, Algeria has launched major economic projects to establish a
dense industrial base. However, despite significant achievements (roads, metro, highways,
universities, factories, etc.), which have been achieved, the Algerian economy has gone through
various stages of turbulence.
In the 1980s, the Algerian economy experienced significant difficulties. Indeed, the 1986 oil
counter-shock dealt a hard blow to an economy that was almost rentious, a period of anti-
penuria and stabilization plans. In the early 1990s, Algeria embarked on structural reforms,
thus making the transition to a market economy a reality.
The Algerian economy remains highly dependent on hydrocarbon rents, which are the
country’s main source of income, without being able to diversify and establish a competitive
industrialization at international level.
Bahrain:
In a region full of hydrocarbons, Bahrain is a small, open economy that enjoys a relatively
favorable economic situation, with oil production and refining accounting for nearly 80% of
its revenues. Bahrain aspires to position itself as a regional leader in financial services
(particularly in the Islamic finance sector), telecommunications and transport.
Bahrain is at the forefront of innovation and banking regulation in the Middle East due to its
membership in the Basel Committee on Banking Supervision. Dependent on the oil sector,
Bahrain was affected by the decline in crude oil prices. In 2017, economic growth continued
to slow to 2.5% GDP (compared to 5.4% in 2013), supported by a counter-cyclical
expansionary fiscal policy. A further deceleration is expected for 2018 (1.7%) due to austerity
measures and weak demand.
Tunisia:
Tunisia’s economy was part of a process of economic reform and liberalization from 1986 after
three decades of government leadership and state participation in the economy. With, from
January first 2008, the opening to global competition by the entry into force of the free trade
agreement concluded with the European Union in 1995, the Tunisian economy is facing
challenges in upgrading entire sectors of its economy while benefiting from sustained annual
economic growth of around 5% per year over the past decade.

Kuwait:
Largely dependent on oil conditions, the economy is expected to experience a second
consecutive year of growth in 2019 due to the high level of oil prices. The oil industry (50% of
GDP) will continue to be the main contributor to GDP growth with a projected 3% growth.
The increase in oil production will also have an impact on external demand, supporting exports.
The non-oil sector is also expected to grow robustly, thanks in particular to the services sector
(particularly telecommunications), but also to manufacturing. Despite a relatively moderate
rise in wages at the end of 2018, private consumption is expected to resume its robust expansion
in 2019.
2- Correlation of the two variables:
The correlation study which will be presented in this part takes into account not the average of
GDP and GDP per capita of each country, but rather the growth rate of GDP and the aggregated
GDP per capita of the area concerned.
This correlation study between the two variables relates to the real GDP of the zone from 1980
to 2019 according to the figures of the International Monetary Fund.
The details of the calculation are summarized in the following table:
The correlation between the two variables is therefore not negative, but it is almost zero (3.9%),
which means that per capita income does not increase as fast as the region’s national GDP.
It can therefore be considered that the basic Solow hypothesis is generally assertive, with
everything else being equal, if the factors discarded by the exogenous growth model are
eliminated.
II- Statistical dependency test:
In this section, we are interested in the dependence between two statistical variables normally
distributed. However, to carry out such a test, the two variables must be distributed according
to the normal law, but in the operation that will follow, we will discover that the GDP of the
countries of the region are not distributed normally, which will prevent us from continuing with
this approach.
1- GDP Normality Test:
We can see by the graph and by the fact that the value of Sig. Is less than 0.05, that the GDP
of the countries of the region are not distributed normally, which prevents us to continue
according to this method, as it was expected in the state of progress already presented.
 Conclusion

In conclusion, we found that the correlation between the two variables in our study is
negative, which confirms the hypothesis of the Solow model of exogenous growth.
We did a comprehensive collection of data for each country, and then we did a
correlation study that gave us a slight correlation coefficient.
The analysis of dependence between the two variables was not possible for us
according to the statistical tools at our disposal since GDP is not normally distributed
in the sample. This may be due to the fact that the sample is not large enough to conduct
such a study.
 Webography/Bibliography

§World Bank Definition: MENA". Worldbank.org. Archived from the original on 29

October 2014.
§United Nations Development Programme in the Arab States". UNDP. Archived from the
original on 2016-11-19.
§Middle East-North Africa Overview". Pew Forum. 7 October 2009.
§Antoine-Louis de Prémonville, « Les fondements de la puissance iranienne »,
Conflits, no 6, juillet-septembre 2015, p.58-61
§http://www.lefigaro.fr/culture/2012/11/12/03004-20121112ARTFIG00485-un- leader-
djihadiste-appelle-a-la-destruction-de-pyramides.php
§https://fr.actualitix.com/pays/bhr/bahrein-indice-de-developpement- humain.php
§L’Algérie fragilisée par la chute du cours de l’or noir, lemonde.fr, 12 septembre 2015
§IMF Data Mapper : https://www.imf.org/external/datamapper/index.php

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