Economic Theory Underlying Adjustment Policies in Arab Countries


Author:	Jamil Tahir (Editor)
Series:
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ISBN Number:	0444827927
Language:	English
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Description:	Arab countries are facing, as most other developing countries, a number of economic challenges inherited from the 12th century and which may be exacerbated in the 21st century. Among these challenges are globalisation, water crises and sustainable development, technological change, and economic consequences of the peace process. Globalisation, as a growing international integration of markets for goods, services and capital, can be driven by various forces. First is the unprecedented increase in the international trade flow of about fifteen-fold during the last four decades (as opposed to a six-fold increase of the worldâ??s population). Developing countries increased their share of global trade to 30 percent in 1995, compared with 24 percent in 1985. One of the important features of global trade is the increasing share of intra-firm trade, encouraged by foreign direct investment (FDI). Multinational world trade amounted to US$5.3 trillion in 1992, compared to world exports of US$4.6 trillion (UNCTAD, 1998). Second is the force of liberalising financial markets and the gradual integration of those markets in developing countries with a global financial system. This force has accelerated after many developing countries agreed to remove restrictions on payments for account transactions, and abandoned control on cross-border financial flow in general, and foreign inflow in particular. This has been reflected in an increases in the number of developing countries trading under current-account convertibility to 70 percent in 1997, compared with 37 percent in 1985. Third, the role of private FDI has been mounting and now outweighs that of official FDI. FDI plays an effective role in the diffusion of know-how and capital, and in the redefinition of the labour division on a global scale. Private capital flow, raised to almost 2 percent in developing countries, is still modest. Although this share has increased to 38 percent of the worldâ??s total, two-thirds of these flows went to just eight countries (World Bank, 1996). Fourth, technological advances in general, and in information technology in particular, have been contributing enormously to integrae markets all over the world. Electronic commerce has been deepening economic interdependence. Goods and raw materials are no longer the only objects of trade. Crossing borders, among others, services, culture, media, entertainment, as well as electronic commerce has granted a new reality, which hardly can be resisted. Globalisation cannot be halted, and the economic reach of nation-states is being challenged. Governments have little choice but to accept the very fact that they must coordinate their efforts as never before. Technology and interdependence are making the distinction between industrial and domestic policies irrelevant. Last, but not least, globalisation is influenced as well by the projected increase in the international trade flow, 6 percent per annum, due to multilateral trade agreements, e.g., the Uruguay Round, and other regional trade arrangements. The Uruguay Round enhanced globalisation by liberalising trade in goods and services. Liberalisation is ensured by means of a number of multilateral agreements, such as those on tariffs and trade, agriculture, textiles and clothing, rules of origin, trade-related aspects of intellectual property rights, trade in services, etc. The members of the World Trade Organization (WTO), which was initiated by the Uruguay Round, numbered 134 on 10 February, 1999, of which nine are Arab countries. The second challenge facing Arab countries is the water crisis and sustainable development. The population of the Arab region is about 3 percent of the worldâ??s total, whereas its share of the renewable water resources is only 1 percent (Rogers and Lydon, 1994). Per capita water reached 3300 m3 in 1960, declined to 1250 m3 in 1995, and is expected to decline further to 667 m3 in 2025 (World Bank, 1993).

Table of contents

PREFACE v

ACKNOWLEDGEMENT vii

LIST OF CONTRIBUTORS ix

CHAPTER 1 INTRODUCTION
Jamil Tahir

PART I : MONETARY ISSUES AND INTEREST RATE 5
POLICY MEASURES
CHAPTER 2 RECENT DEVELOPMENTS IN MONETARY ISSUES : 7
SURVEY OF THEORY AND EVIDENCE
Jamil Tahir
INTRODUCTION 7
1. SUPPLY OF MONEY 9
1.1 Definition of Money 10
1.2 Determination of the Stock of Money 12
1.3 Control of the Stock of Money 20

2. DEMAND FOR MONEY 26
2.1 Theories of the Demand for Money 27
2.2 Variables in Demand Function for Money 30
2.2.1 Income 30
2.2.2 Interest Rate 34
2.2.3 Expected Rate of Inflation 36
2.2.4 Exchange Rate 39
2.3 Stability of the Demand Function for Money 40
2.4 The Transmission Mechanism 42
CONCLUSION 45
REFERENCES 54
CHAPTER 3 RECENT DEVELOPMENTS IN INTEREST RATE ISSUES 69
AND POLICIES: A SURVEY OF THEORETICAL AND
EMPIRICAL LITERATURE
Jamil Tahir
INTRODUCTION 69
1. INTEREST RATE AND GROWTH : SAVINGS, 69
AND AGGREGATE DEMAND
1.1 Interest Rate and Savings 71
1.2 Interest Rates and Investment 72
1.3 Interest Rate and Aggregate Demand Stability 79
2. REAL AND NOMINAL INTEREST RATES 81
3. DETERMINATION AND STRUCTURE 85
OF INTEREST RATES
4. INTEREST RATE AND DEVELOPMENT OF 89
ISLAMIC BANKING SYSTEM
5. INTEREST RATE REFORM AND 91
FINANCIAL LIBERALIZATION
5.1 Strategy For and the Impact of Interest 98
Rate Reform
5.2 Consequences of Interest Rate Reforms 100
and Stabilization Policies
CONCLUSION 104
REFERENCES 113
PART III : FISCAL ISSUES AND POLICY MEASURES 127

CHAPTER 4 FISCAL ISSUES IN IMF-SUPORTED 129
ADJUSTMENT PROGRAMS
Riad Dahel
INTRODUCTION 129
1. MACROECONOMIC EFFECTS OF PUBLIC-DEFICIT 130
FINANCING
1.1 Domestic Borrowing 131
1.2 Foreign Borrowing 132
1.3 Money Creation 132
2. REVENUE POLICIES 133
2.1 Direct Taxes 135
2.1.1 Personal Income Taxes 135
2.1.2 Corporate Income Tax 135
2.1.3 Property Tax 136
2.2 Indirect Taxes 136
2.2.1 Domestic Taxes 136
2.2.1.1 Selective Taxes on Goods 136
2.2.1.2 General Taxes on Goods 136
2.2.1.3 Selective Taxes on Services 137

3. EXPENDITURE POLICIES 138
3.1 Wages and Salaries 138
3.2 Goods and Services 138
3.3 Subsidies 138
3.4 Capital Spending and Interest Payments 139
4.1 Exchange Rate Overvaluation 140
4.2 Inflation 140
4.3 Primary-commodity Export Cycles 141
5. CONCLUSION 142
REFERENCES 144
PART III : INCOME AND WAGE POLICY MEASURES 147
CHAPTER 5 LABOR MARKETS AND STRUCTURAL ADJUSTMENT 149
POLICIES: IMPLICATIONS TO DEVELOPING
AND ARAB COUNTRIES
Sulayman Al-Qudsi
1. INTRODUCTION 149
1.1 The Rise of Unemployment 151
1.2 Economic Growth and Unemployment 154
1.3 Unemployment and Unemployment Benefits: 156
Mutual Causality?
1.3.1 Unemployment: The Insider-Outsider Approach 157
1.4 Efficiency Wage Theory and Role of Information 159
1.5 Unemployment and Organization of Production 160
1.6 The Empirical Record 161
2. DEMAND:THEORY AND EMPIRICAL FINDINGS 165
2.1 Labor Demand 165
2.2 Factor Determining Labor Demand 167
2.3 Empirical Estimates 169
3. BASIC THEORY OF LABOR SUPPLY 171
3.1 Labor Supply Estimation Methodology 173
3.2 Empirical Estimates 175
3.3 Policy Implications of Labor Supply Elasticity 180
3.4 Public Sector Labor Market 180
4. WAGE DETERMINATION 180
4.1 Information, Search and Wages 183
4.2 Wage Policies and the Rocky Road to Reform 185
4.3 Minimum Wages: Two Views 186
4.4 Minimum Wages and Rural-Urban Migration 188
4.5 Emprical Evidence 191
4.6 Discrimination: The Role of Sex 192
4.7 Levels and Trends of Public Sector Employment 195
5. INCOME DISTRIBUTION 198
5.1 Income Policies 202
5.2 Taxation and Income Distribution 206
5.3 Social Security 208
6. ARAB LABOR MARKETS : AN OVERVIEW 211
6.1 Employment 213
6.2 Unemployment 215
6.3 Labor Migration 218
6.4 Impacts 219
6.5 Return Migration 220
6.6 Income Distribution and Inequality 221
6.7 The Future Outlook 225
REFERENCES 228
PART IV : EXCHANGE RATE ISSUES AND TRADE POLICY 245
MEASURES

CHAPTER 6 EXCHANGE RATE ISSUES IN STABILIZATION 247
PROGRAMS
Riad Dahel
INTRODUCTION 247
1. THE CHOICE OF AN EXCHANGE RATE REGIME 247
2. EXCHANGE RATE POLICY AND STABILIZATION PROGRAMS 251
3. CONCLUSION 257
REFERENCES 259
CHAPTER 7 RECENT DEVELOPMENTS IN TRADE ISSUES 263
Adil Abdalla
INTRODUCTION 263
2. ADTRITIONAL AND NEW TRADETHEORIES 266
AND TRADE POLICY
3. ON THE NATURE OF TRADE POLICY REFORM 270
AND LIBERALIZATION
3.1 The Reason for Trade Reform 270
3.2 Preferred Properties of Trade Reform Programs 272
3.3 The Elements of Trade Liberalization Policy 273
3.4 Refinement of Trade Reforms 274
4. RELATED ISSUES 276
4.1 Intra-industry Trade 277
4.2 Growth and Trade 279
5. CONCLUSIONS AND SUGGESTIONS 283
REFERENCES 288

CHAPTER 8 CONCLUSIONS AND POLICY IMPLICTIONS: 297
LESSONS FROM THEORY AND EXPERIENCE
Jamil Tahir
I. Monetary and Interest Rate Policy Measures 297
II. Fiscal Issues and Policy Measures 298
III. Labor Markets : Income and Wage Policy Measures 298
IV. Exchange Rate and Trade Issues and Policy Measures 299
INDEX 303



Date:	1997

Number of Pages:	314

Price :	$0.00 (KD0.000)

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