An Introduction to the Special Issues on Financial Markets of the Middle East

ABSTRACT Bureaucracy, unclear regulations, corruption, and favoritism of nationals in employment, create adverse conditions for both domestic and foreign investment in the Middle East and North Africa region. Entrepreneurs who want to operate in the region have to consider the level of restrictiveness in five factors: Starting a Business, Hiring and Firing Workers, Enforcing Contracts, Getting Credit, and Closing a Business. The economic and financial conditions examined in Algeria, Egypt, Iran, Israel, Jordan, Kuwait, Lebanon, Morocco, Oman, Saudi Arabia, Syria, Tunisia, Turkey, United Arab Emirates, and Yemen demonstrate how the level of government interference affects the economic development of each country. JEL: E0; E1; F3; F4; N2; 04; O5 Keywords: Middle East and North Africa (MENA); Algeria, Arab Republic of Egypt; Islamic Republic of Iran; Israel; Jordan; Kuwait; Lebanon; Morocco; Oman; Saudi Arabia; Syrian Arab Republic; Tunisia; Turkey; United Arab Emirates; the Republic of Yemen; Economic Indicators; Foreign Direct Investment. I. INTRODUCTION The dominant worldwide trend towards globalization had induced the proliferation of global organizations such as the World Trade Organization (WTO), and the International Monetary Fund (IMF). There is an increased movement of more countries joining trade blocks. (1) These organizations were formed to aid countries in liberalizing international trade and finance. Dollar and Kraay (2000) discuss the benefits of increased international trade on economic growth, which then benefit the poor, improve infrastructure, transportation, and institutional quality. The positive spillovers affect fiscal policies, improve the performance of the export sector, increase competition for capital, goods, and services, and encourage both economic as well as political reforms. Thus, trade openness is not only beneficial but also necessary for countries to improve per capita income and reach the next stage of economic development. (2) Some countries have taken full advantage of globalization, enjoying the wealth that it can bring while ensuring to minimize the downside risk. However, globalization has impacted different groups differently, forcing some to bear all the costs while others benefit. Nevertheless, on average free trade is widely believed to benefit the global economy and the standard of living. The critical questions is to identify what role the Middle East and North Africa (MENA) region play in the global community and the level of integration and development of its member countries. The MENA region has been receiving extensive media coverage and public attention for various reasons. Many have recognized that most MENA countries have long abstained from the global trend of further globalization, modernization and political and economic liberalization. Some claim that the region is facing the reduction in oil wealth that can no longer act as a cushion or employ the huge population growth. In the beginning of 2004, President George Bush outlined the necessary steps to achieve greater development in the MENA region in his so called Greater Middle East Initiative. The document suggested methods to promote political freedom, equality for women, access to education, advancement to greater openness in the MENA region, creation of free trade zones in the region, new financing for small businesses and helping in overseeing elections (Brezinski, 2004). However, the Initiative received a negative reaction from Arab nations, especially as a result of the ongoing conflict in Iraq (Dimnore and Khalaf, 2004, Holland, 2004, IMF, 2004). Increased violence has caused international companies to scale back their investments in Iraq leaving the U.S. to carry most of the burden to rebuild the country in time for the transfer of sovereignty from the U.S.-led coalition to an interim Iraqi government by June 2004 (The Economist Intelligence Unit, 2004B). …