What happened to growth after political change?

Leaders matter. Incompetent regimes are more likely to be replaced, Caroline Freund

The Arab spring has had a political whirlpool effect on countries of the Middle East. With nothing happening for quite a long time, to almost all drives for change interchangeably playing active role in the region. After many decades of nothing, a lot of change happened. The ERF organized a session on’ The Political Economy Of Change In The Middle East – What Is Driving Change? during the Seventeenth World Congress, organized by Intentional Economic Association  (IEA) and the Colombia Global Centers, Amman.  The session aims to discuss ideas and directions to think about what is guiding this change, what is currently happening, make some logic of surrounding events and try to figure out the main drives for change in the Middle East, being it geopolitical, social or economic.

In this session Caroline Freund, Peterson Institute presented a paper ‘Change In The Middle East: Similarities And Differences With Global Experiences’ co-authored by Melise Jaud, World Bank. The aim of the paper is to try to understand what to expect based on other countries’ experience that has gone through democratic transitions by examining the causes and economic consequences of political transition.  Freund in her paper examines over 100 transitions in the last half-century with various outcomes: to and from democracy, some partial, and some failed.

Did strong optimism about rapid political change lead to growth?
The desire for political change in the MENA region was largely accompanied by a wish for economic growth in the region. But did this really happen? Freund studies relevant experiences to look for patterns and lessons, and she found that 70% of the countries that has gone through political transitions were able to sustain democracy, but 30% failed.  She also argues that growth is related most importantly to regime change, so democracy promotes growth, but so does other types of regimes.

Even if there are not growth benefits to democratic transition relative to other types of transitions, countries will still produce higher growth rates.

Fruend has interesting results to share on transitions and success. She identifies natural resources; a military government, gender equality, and urbanization significantly affect both the likelihood of regime change and the durability of democracy success.  The research team also looks at the spillover effect, whether successful political transitions can be contagious to other countries in the MENA region?

And finally, economic reform is far more important for growth than political regime change. For growth to happen in the MENA, it requires supreme attention to creating a competitive environment that is externally oriented for the private sector. Growth will not happen if government continues to focus on public sector, subsidize energy, and fall on labor as a competitive advantage. Governments to need to make people e work in industries that produce good and can be tradable.

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