The Arab Economies in a Changing World.

The Arab Economies in a Changing World

Marcus Noland and Howard Pack

Petersen Institute: Washington, DC, 2007, $24.95, 313pp.

This book 'provides an integrated politico-economic analysis of Arab economic performance and prospects', and represents, as the dust jacket also says, 'a major addition to a very slim literature on an important issue'. These two authors, well-known development specialists, forcefully argue that the considerable recent economic growth of the Arab nations, though diverse, must increase to absorb the cohorts coming of labour force age--even more so at rising living standards. Noland and Pack flesh out this familiar Arab demographic/growth conundrum by comparing, wherever possible, the growth patterns of both the resource-rich and the normally endowed Arab nations with comparators from other developing nations. They draw on their own work--particularly in East Asia--and from an encyclopaedic group of other studies and statistical compilations and attend to all the interpretation problems with professional care.

Turning to solutions, Noland and Pack favour a closer integration of the Arab economies with each other and those of other nations, increased industrialisation and trade, more local and direct foreign investment, and recognition of the considerable complementarities of technology and human capital in such activities. Of particular note is their discussion of the need to coordinate human capital development and migration with technology transfer and/or industrial diversification. Problems related to brain drains and the return of skilled expatriates are examined. They note the positive accomplishments of some Asian nations in these areas and the role of the political-economic climate 'at home'. Given the diversity of international experiences, however, they discount any panacea such as 'the Washington consensus'. The recent run up in oil prices may alter growth patterns from those experienced over the prior 20 years, especially in the resource-rich Arab nations. However, they rightly question whether those nations will use the opportunity to lay solid foundations for self-sustaining future growth.

In examining limitations to growth, Noland and Pack become more speculative. Their analysis broadens to institutional, sociological and political dimensions such as religion, bureaucracy, corruption, investment risks, the structure of financial institutions, truncated private markets and more. In their examination of Islam as a possible obstacle to market processes, their comparative analysis shows that Islam does not appear to be a major constraint on economic growth and development. They emphasise, however, that entrenched (but perhaps shaky) governments--both royal and authoritarian--can readily impede growth unless governments permit and/or encourage private economic initiatives, as they have in East Asia and some East European nations. Additionally, they correctly cite the destabilising efforts of growth on entrenched interest groups--including the military. Surprisingly, however, they do not develop the more subtle and perhaps crucial impacts of centralised governmental structures.

Various Arab attempts honestly to address pressing economic and social problems might easily be taken as criticism of the regime in power. Make-work and income re-allocation programmes, particularly those in the resource-rich Arab economies, have raised reservation wages, altered occupational choices and educational incentives, and even reduced labour force participation rates. Yet, any criticism or recommended policy changes may be seen as attacks on the regime. So might concerns with the numbers and conditions of 'guest workers' from Pakistan, India, the Philippines and elsewhere. Noland and Pack do touch on this matter tangentially, noting that radical Islam may be one of the few outlets for dissatisfaction in several Arab nations.

Radical Islamists, terrorists, bureaucratic hurdles and corruption all pose risks to domestic and direct foreign investment. But successes in Jordan and Tunisia provide some encouragement, despite setbacks from time to time. Noland and Pack are less encouraged by the situation in Egypt, home to roughly half of all Arabs. Another investment risk is the potential Israeli military threat to Arab population centres such as Damascus. By diplomatic means, Europe and the United States could reduce these risks and stimulate economic growth. While the authors correctly state that Israel is '... a handy foil to deflect responsibility for local problems' in many Arab lands, in my opinion the tensions created by Zionism and related settlement issues raise investment risks throughout the region. Surely, the economic prospects of the entire region would brighten substantially if the Israelis were drawn into productive collaboration with their Arab neighbours.

Noland and Pack have not limited their analyses to the narrower bounds of economics. By integrating economic theory and development experience with insights from politics, sociology and history in a comparative framework, they make a substantial contribution to our understanding. Their book fills a big need. One hopes Arab leaders will also read it.

doi:10.1057/ces.2008.27

Robert M. Fearn

North Carolina State University, Raleigh, NC, USA

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