Economic Research Forum (ERF)

MENA trade patterns and the pursuit of growth

2388
Changing trade structures continue to shape national development paths, not least for the countries of Middle East and North Africa, whose futures depend closely on trends in globalisation. This column outlines empirical evidence for the region, which indicates the positive growth effects of participation in global value chains for the all sectors. The analysis also reveals considerable variation within the region in terms of types of trade flows, sectors and trade partners.

In a nutshell

Growth of firms in both the manufacturing and non-manufacturing sectors of the MENA region is highly dependent on international trade with non-MENA countries; the positive growth impact of participation in global value chains is particularly striking.

Exporting intermediate products to the GCC and non-MENA countries boosts growth for the region’s manufacturing sector; expanding forward global value chain participation with China and other developing countries enhances the region’s services sector.

All industries in the region stand to gain from an increase in backward global value chain participation with the EU and the United States; the regions’ firms depend on trade being at the heart of policy-makers’ economic strategies.

Over the past three decades, trade liberalisation has generally increased around the world. This has come alongside falling transport costs and enhancements in information and telecommunication technologies. The Middle East and North Africa has experienced these changes through different bilateral and regional trade agreements with countries both within and outside the region (Miniesy et al, 2004).

But integration of the MENA region into the global production system is comparatively weak, which may be due to insufficient implementation of these agreements and collaborations (Saidi and Prasad, 2018). This suggests that the benefits from trade are not yet being fully realised.

The MENA region and international trade

A recent study (Tat et al, 2023) examines past trade patterns of the region, analysing the impact of changing trade on growth in different sectors. The authors first investigate the trade patterns – that is, the backward and forward integration of the MENA region – by considering different trading partners: North Africa, the Gulf Cooperation Council (GCC), the rest of the Middle East, the European Union (EU), the United States, China, other developed countries and other developing countries.

Figure 1 illustrates the shares of each country group or countries within the MENA region’s intermediate exports over 25 years from 1990. The data show that while the shares of intermediate exports to China and other developing countries increase throughout the period, the shares of intermediate exports to the EU and other developed countries decrease.

Figure 2 demonstrates the shares of each country group or country within the MENA region’s final exports. The data show that while the shares of final exports to the GCC, other Middle East and other developing countries expand throughout the period, the shares of final exports to the EU, the United States and other developed countries decrease.

Figure 1: Shares of intermediate exports (%) from the MENA by country groups

Source: Tat et al (2023)

Figure 2: Shares of final exports (%) from the MENA by country groups

Source: Tat et al (2023)

Figure 3 presents the shares of each country group or countries within the MENA regions’ intermediate imports. The data show that while the shares of intermediate imports from China and other developing countries grow throughout the period, the shares of intermediate imports from the EU, the United States and other developed countries decrease.

Figure 3: Share of intermediate imports (%) to the MENA by country groups

Source: Tat et al (2023)

Overall, the EU appears to be the main trade partner of the MENA region (over 30% of commerce), regardless of the types of trade flows. For all types of exchange, trade with other developing and developed countries reaches substantial shares. For final exports, intra-regional trade has a crucial share in the MENA region.

When considering the composition of trade according to trade partners over the period, it is apparent that while the shares of the EU and other developed countries in all types of trade tend to decrease, the shares of other developing countries in all kinds of trade, and the share of China in intermediate trade, tend to increase.

How do the growth effects of trade vary?

The study also analyses the growth impacts of trade with these country groups or countries for the manufacturing, services, agriculture and mining sectors, from 1990 to 2015. The findings reveal the importance of the positive growth impact of participation in global value chains.

Shipping goods abroad is beneficial for many businesses in the MENA region. Exporting intermediate products to the GCC, the EU, the United States, China, other developed and other developing countries boosts growth for the manufacturing sector. Intra-MENA trade of final products also seems to help businesses in the manufacturing sector grow.

In terms of buying items in, importing intermediate products from developed countries including the EU and the United States enhances growth of the manufacturing, services, agriculture and mining sectors in the MENA region. So, international trade linkages are valuable in many cases.

While exporting intermediate services to the GCC, China and other developing countries increases services sector growth, exporting final services to China and other developed countries increases overall growth. So, depending on the trade partner, different types of exchange have differing effects on firms within the MENA region.

Overall, these findings suggest that while expanding forward global value chain participation with all groups or countries promotes the MENA regions’ manufacturing sector, expanding forward global value chain participation with China and other developing countries enhances the services sector.

All industries gain from an increase in backward global value chain participation with the EU and the United States. In both cases, international trade – and the patterns of exchange – should remain at the heart of policy-makers’ economic strategies. The regions’ firms depend on it.

Further reading

Miniesy, RS, JB Nugent and TM Yousef (2004) ‘Intra-regional trade integration in the Middle East: Past performance and future potential’, in Trade Policy and Economic Integration in the Middle East and North Africa: Economic Boundaries in Flux.

Saidi, N, and A Prasad (2018) ‘Trends in trade and investment policies in the MENA region’, MENA-OECD Working Group on Investment and Trade.

Tat, Pınar, Abdullah Altun and Halit Yanıkkaya (2023) ‘The Past and the Future Trade Patterns of the MENA Region: The Pursuit of Growth’, ERF Working Paper No. 1650.

Tags: , , , ,

  • Pınar Tat
    Pınar Tat
    Department of Economics, Gebze Technical University, Turkey
  • Abdullah Altun
    Abdullah Altun
    Department of Economics, Gebze Technical University, Turkey
  • Halit Yanıkkaya
    Halit Yanıkkaya
    Professor, Department of Economics, Gebze Technical University, Turkey

Most read

Trust in Lebanon’s public institutions: a challenge for the new leadership

Lebanon’s new leadership confronts daunting economic challenges amid geopolitical tensions across the wider region. As this column explains, understanding what has happened over the past decade to citizens’ trust in key public institutions – parliament, the government and the armed forces – will be a crucial part of the policy response.

Qatarisation: playing the long game on workforce nationalisation

As national populations across the Gulf have grown and hydrocarbon reserves declined, most Gulf countries have sought to move to a more sustainable economic model underpinned by raising the share of citizens in the productive private sector. But, as this column explains, Qatar differs from its neighbours in several important ways that could render aggressive workforce nationalization policies counterproductive. In terms of such policies, the country should chart its own path.

Small businesses in the Great Lockdown: lessons for crisis management

Understanding big economic shocks like Covid-19 and how firms respond to them is crucial for mitigating their negative effects and accelerating the post-crisis recovery. This column reports evidence on how small and medium-sized enterprises in Tunisia’s formal business sector adapted to the pandemic and the lockdown – and draws policy lessons for when the next crisis hits.

Economic consequences of the 2003 Bam earthquake in Iran

Over the decades, Iran has faced numerous devastating natural disasters, including the deadly 2003 Bam earthquake. This column reports evidence on the unexpected economic boost in Bam County and its neighbours after the disaster – the result of a variety of factors, including national and international aid, political mobilisation and the region’s cultural significance. Using data on the intensity of night-time lights in a geographical area, the research reveals how disaster recovery may lead to a surprising economic rebound.

Qatar’s pursuit of government excellence: promises and pitfalls

As Qatar seeks to make the transition from a hydrocarbon-based economy to a diversified, knowledge-based economy, ‘government excellence’ has been identified as a key strategic objective. This column reports what government effectiveness means in terms of delivery of public services, digitalisation of services, and control of corruption – and outlines the progress made to date on these development priorities and what the country needs to do to meet its targets.

The impact of climate change and resource scarcity on conflict in MENA

The interrelationships between climate change, food production, economic instability and violent conflict have become increasingly relevant in recent decades, with climate-induced economic shocks intensifying social and political tensions, particularly in resource-constrained regions like MENA. This column reports new evidence on the impact of climate change on economic and food production outcomes – and how economic stability, agricultural productivity and shared water resources affect conflict. While international aid, economic growth and food security reduce the likelihood of conflict, resource scarcity and shared water basins contribute to high risks of conflict.

A Macroeconomic Accounting of Unemployment in Jordan:  Unemployment is mainly an issue for adults and men

Since unemployment rates in Jordan are higher among young people and women than other groups, unemployment is commonly characterised as a youth and gender issue. However, the majority of the country’s unemployed are adults and men. This suggests that unemployment is primarily a macroeconomic issue challenge for the entire labour market. The appropriate response therefore is coordinated fiscal, monetary, structural and institutional policies, while more targeted measures can still benefit specific groups.

The green energy transition: employment pathways for MENA

The potential employment impacts of green and renewable energy in the Middle East and North Africa are multifaceted and promising. As this column explains, embracing renewable energy technologies presents an opportunity for the region to diversify its economy, mitigate the possible negative impacts of digitalisation on existing jobs, reduce its carbon footprint and create significant levels of employment across a variety of sectors. Green energy is not just an environmental imperative but an economic necessity.

Global value chains, wages and skills in MENA countries

The involvement of firms in production across different countries or regions via global value chains (GVCs) can make a significant contribution to economic development, including improved labour market outcomes. This column highlights the gains from GVC participation in terms of employment quality in Egypt, Jordan and Tunisia. Given the high unemployment, sticky wages and wide skill divides that are common in the MENA region, encouraging firms to participate in GVCs is a valuable channel for raising living standards.

Tunisia’s energy transition: the key role of small businesses

Micro, small and medium-sized enterprises (MSMEs) play a critical role in Tunisia’s economy, contributing significantly to GDP and employment. As this column explains, they are also essential for advancing the country’s ambitions to make a successful transition from reliance on fossil fuels to more widespread use of renewable energy sources. A fair distribution of the transition’s benefits across all regions and communities will secure a future where MSMEs thrive as leaders in a prosperous, inclusive and sustainable Tunisia.