Ishac Diwan

Paris Sciences and Letters (PSL) University · Faculty of Humanities

A Fragile Power , by Eberhard Kienle. London: Routledge, 2022. 244 pages. $180 cloth; $49.99 paper, e-book. Egypt under El-Sisi: A Nation on the Edge , by Maged Mandour. London: I. B. Tauris, 2024. 224 pages. $27 cloth, $24.30 e-book.

In a nutshell Compared with the North African colonies of the French Empire, the French Mandate’s economy was over-taxed. Much of the tax revenues were used to finance the French military, and only a smaller part was spent on infrastructure and social services; education and health were made the prerogatives of private and missionary endeavours....

The paper examines public budgets (tax revenues and expenditure patterns) in Lebanon and the four Syrian states that were created during the French Mandate (1920-1943). To do so, we reconstruct fiscal accounts through the annual reports to the Permanent Mandates Commission that the French authorities were required to publish. We then focus on the e...

When comparing both GDP loss and mortality across countries, it appears that countries that have managed to save more lives during the Covid-19 pandemic have also managed to save their economies better. What accounts for these stark differences in country performances? In this article, we argue that a salient feature of economic and health performa...

When do autocratic rulers in oil-producing countries support private sector development? We argue that the size of oil rents per capita has an important effect on ruler support for the rule of law, respect for private property rights, and other factors that promote private investment. However, the effect is not linear, but instead resembles a U-cur...

Using firm-level data, we document that politically connected firms (PCFs) create more jobs than unconnected firms in Lebanon. We observe, however, that the presence of PCFs in a sector is correlated with lower job creation. Although causality is difficult to establish due to endogeneity issues, we find that PCFs expand, and non-PCFs retract, more...

More than ever, a dynamic private sector is essential for creating the jobs that increasingly educated youth aspire to in the Middle East and North Africa (MENA). This chapter explores the possibility of this happening in the near future.

Using firm-level data, we document that politically connected firms (PCFs) create more jobs than unconnected firms in Lebanon. We observe, however, that the presence of PCFs in a sector is correlated with lower job creation. Although causality is difficult to establish due to endogeneity issues, we find that PCFs expand, and non-PCFs retract, more...

When can oil economies be deemed sustainable? This complex question has been profusely debated in the last 5 years. The timing of this debate is no coincidence. On the one hand, the pace of environmental degradation has aggravated, in terms of air pollution, carbon emissions and the impacts of the planet’s warming. On the other hand, volatile inter...

Do states manage to build education systems that produce students with political values they uphold? We test the indoctrination hypothesis using World Value Survey data spanning 96 countries. We devise an empirical strategy that can identify the effects of education on political values by using information about the political regime under which ind...

While the rentier mode of development followed by Saudi Arabia so far is becoming clearly unsustainable, the question arises as to what should replace it. The chapter argues that the current focus on economic diversification in tradable good is unrealistically ambitious. It proposes instead a vision for the future that is both desirable and more fe...

The COVID-19 crisis comes on the heels of grave economic and political crises that have hit Lebanon at the end of 2019. In contrast to the rather favourable health situation (so far) with a relatively limited number of infections and fatalities, the COVID-19 crisis is expected to have devastating economic costs — both directly and indirectly — give...

The Covid-19 pandemic in Lebanon is a crisis within a crisis. It occurred amidst a broader socio-economic meltdown that has shaken the country in recent months. While Lebanon appears to have responded effectively to the pandemic so far, a number of major challenges await it. With little measures to mitigate the economic impact of the confinement an...

Most developed countries have responded to the Covid-19 crisis by imposing lockdowns to control the spread of infections rather than taking the ‘herd immunity’ approach that some have advocated. This column argues that poor countries should not necessarily mimic this response: for them, the risks of the herd immunity approach can be dwarfed by the...

Within a few years of the historic Arab uprisings of 2011, popular mobilization dissipated amidst instability in many Arab countries. We trace the relationship between shifting macro-political conditions and individual-level political values in the Middle East, demonstrating that a preference for democracy and political trust are not fixed cultural...

We present novel evidence suggesting that cronyism had a negative effect on economic growth in Egypt, during a period when international organizations praised the country for its reforms of business regulation. We identify 385 politically connected firms under the Mubarak regime. This large database allows us to show that 4-digit sectors that exper...

The popular uprisings in 2011 that overthrew Arab dictators were also a rebuke to crony capitalism, targeted against both rulers and their allied businessmen who had monopolize profitable economic opportunities. While the Middle East has witnessed a growing nexus between business and politics in the wake of economic liberalization, little is known...

The popular Arab uprisings in 2011 that overthrew dictators in North Africa (which became known as “the Arab Spring”) were not just a revolt against dictatorships. They were also a rebuke to crony capitalism—against insider businessmen who were connected to the ruling circle and ended up monopolizing all economic opportunities. As the curtain of au...

This chapter investigates how politically connected firms affect job creation in Lebanon. Using firm-level census data, the chapter first establishes that politically connected firms create more jobs than otherwise similar unconnected firms. This overstaffing increased around the 2009 parliamentary elections. These findings suggest that firms and p...

The chapter is concerned with the future of state–business relations (SBRs) in the MENA region, and about the potential for private sector growth. Can the new environment of heightened popular demands and lower oil prices encourage the political regimes in place to improve their efforts at boosting economic growth, even at the political risk of tol...

Using an original database of 385 politically connected firms under the Mubarak regime in Egypt, this chapter documents that: (1) the value of these firms went down by 13–16 percent more than non-connected firms after Mubarak was removed from power; (2) crony firms enjoyed multiple regulatory and fiscal privileges that reduced competition; (3) thes...

Why do private banks lend preferentially to politically connected firms? Focusing on the case of Egypt during the later years of Mubarak's rule, we identified politically connected firms, and we documented, using the Orbis corporate data on large firms in Egypt, that they received a disproportionate amount of the loans going to the private sector d...

Using World Value Survey opinion poll data, we empirically characterize the economic values and norms held by individuals in the Arab world, in comparison to values held in the rest of the world. We find that, contrary to some common beliefs, there are many values that predispose citizens of Arab countries to be part of a market economy, including...

We show that measures of patriarchal culture are correlated with female labor force participation (FLFP) and that levels of women education, together with personal values and country norms in regard to patriarchy explain most of the regional variations in FLFP observed around the world. We argue that education hides (at least) three separate effect...

We take a new look at the question of the Arab democratic exception by looking at the preference for democracy among individuals in the Arab world in a comparative context. We use the new sixth wave of the World Value Survey, which was collected between 2012 and 2013, and which included for the first time 12 Arab countries (up from only four in wav...

Diwan and Galal looks at the structure and prospects of the Middle East economies after the 2011 Uprisings, focusing on issues of economic growth, inequality, the impact of oil, and the unfolding political transitions. On the growth question, the book looks into the extent of structural transformation of the economy, the political economy reasons f...

In the past 50 years, the MENA region has been integrated to the world economy through two main channels: the sale of oil, and labor migration. Labor migration, in retrospect, acted as the main way to redistribute oil revenues from the oil exporting to the importing countries, especially those in the Mashrek region, greatly benefitting millions of...

After a long gestation period, finally there was an Arab spring in January 2011, which has since turned into other seasons. Along with the spring came an avalanche of new books on the political economy of the Middle East and North Africa (MENA). So, do we need one more book on the subject? The short answer is yes, simply because no topic is ever ex...

A fiscal sociology of the state offers a useful lens for tracing the evolution of social contracts and the underlying political settlements2 that sustain them (Campbell 1993; Goldscheid 1958). In the Middle East, fiscal policy has gone through dramatic changes over the past 50 years, with state expenditures first growing to extraordinary levels, an...

In the past 50 years, the MENA region has been integrated to the world economy through two main channels: the sale of oil, and labor migration. Labor migration, in retrospect, acted as the main way to redistribute oil revenues from the oil exporting to the importing countries, especially those in the Mashrek region, greatly benefitting millions of...

The paper studies the nature and extent of Egyptian “crony” capitalism by comparing the corporate performance and the stock market valuation of politically connected and unconnected firms, before and after the 2011 popular uprising that led to the end of President Mubarak rule. First, we identify politically connected firms and compare the corporat...

A Political Economy of the Middle East is the most comprehensive analysis of developments in the political economy of the region over the past several decades, examining the interaction of economic development processes, state systems and policies, and social actors in the Middle East. The fourth edition, with new authors Melani Cammett and Ishac D...

For the millions of citizens in the Arab World who came together in 2010-2011 to discover their common yearning for dignity and liberty, the real revolutions only began after the wave of protests. Understanding the Political Economy of the Arab Uprisings reassess the interests, potential and constraints of various socio-political players and their...

The paper presents the outlines of a coherent, structural, long term account of the socio-economic and political evolution of the Arab republics that can explain both the persistence of autocracy until 2011, and the its eventual collapse, in a way that is empirically verifiable. I argue that the changing interests of the middle class would have to...

Both the future of the Middle East and the success of the formidable nonviolent mass movement in Tunisia, Egypt, Bahrain, and Yemen depend on what happens next in Damascus. If the dictatorship survives, if its main pillars are not brought to justice on the way to a democratic transition, Asad’s continued rule will doom domestic and international pe...

The paper presents the outlines of a coherent, structural, long term account of the socioeconomic and political evolution of the Arab republics that can explain both the persistence of autocracy until 2011, and the its eventual collapse, in a way that is empirically veri¯able. I argue that the changing interests of the middle class would have to be...

This paper attempts to explain the main drivers behind private capital flows into MENA in the 1990s. Witnessed improvements in the elements of the economic enabling environment for such flows, and stylized observations on the trends and composition of those flows, are presented. Econometric testing shows that, among those elements, improved indebte...

A large literature has developed on the country and other factors that influence the effectiveness of aid and the development aid business more generally. Two major findings have emerged (World Bank, 1998). First, aid is more effective when the recipient country’s policy and institutional environment satisfies some minimal criteria. Second, aid and...

We assess the dynamics behind the high net resource transfers by donors and creditors to Sub-Saharan African countries. Analyzing the determinants of overall net transfers for a panel of 37 recipient countries in 1978--98, we find that country policies mattered little. Donors--especially bilateral donors--actually made greater transfers to countrie...

Incl. tables, graphs, bibl., abstract. We assess the dynamics behind the high net resource transfers by donors and creditors to Sub-Saharan African countries. Analyzing the determinants of overall net transfers for a panel of 37 recipient countries in 1978-98, we find that country policies mattered little. Donors (especially bilateral donors) actua...

In this Paper we focus on the question: Will the HIPC debt reduction program help in the transformation of the development assistance business and change the rules of the 'debt game' in Africa? We concentrate on the donor and official creditor side, by exploring how the growing debt of African countries, over the last two decades, has affected the...

Middle East and North Africa Region. The findings, interpretations and conclusions expressed in this paper are entirely those of the authors and do not necessarily represent the views of the World Bank, its Executive Directors, or the countries they represent.

The paper investigates how the distribution of income between labor and capital is affected by financial crises. Using an international panel-data of the share of labor in GDP, three sets of empirical regularities emerge: (i) a tendency for the labor share to fall sharply during a financial crisis, recovering only partially in subsequent years; (ii...

The objectives of this paper are to estimate the costs and benefits of labor retrenchment in state-owned industrial enterprises in China. Our results indicate the prevalence of low and stagnant labor productivity, low capital productivity, and excessively high wages in the state sector during the period under review (1994-97), while the non-state s...

The historic breakthrough in the peace negotiations between the Israelis and Palestinians in Oslo, occasioned by the signing of the Declaration of Principles at the White House on 13 September 1993, brought with it euphoria and expectations of a blooming peace and bustling prosperity. The international community, anxious to demonstrate its solidari...

This paper explores to what extent the magnitude and speed of the contagion effects that materialized in East Asia in the second half of 1997 may have had "real" underpinnings, in the sense that the pattern of production, consumption and trade increased the vulnerability of East Asian countries to external shocks. Two major possibilities are invest...

Incl. bibl., index, statistical annex.

These are revolutionary times in the global economy. The lives of workers in different parts of the world are increasingly intertwined. The embrace of market–based development strategies by many developing and post–centrally planned economies, the opening of international markets, and great advances in the ease with which goods, capital, and ideas...

All workers are concerned about their incomes and security of employment, but little work has been done on these issues in developing countries, especially in the context of the recent globalization of economic relations. Empirical work suggests that disequalizing trends in some developing countries may have been caused by the entry of low-income c...

The paper reviews the links between long-run growth patterns, the process of opening up, and the effects on income distribution. Three themes are developed. First, the historical pattern of development brought dividends to all until the end of the oil boom, but is now bankrupt and is a potential disaster for poverty and employment. Second, much of...

External Assistance to the Palestinians : What Went Wrong ?, by Barbara Balaj, Ishac Diwan and Bernard Philippe The historie breakthrough between the Israelis and the Palestinians in September 1993, was accompanied by an international economie aid effort to help rebuild the dilapidated infrastructure in the West Bank and Gaza, and attract private s...

We analyze the mechanics of menu-driven debt reduction deals, similar to those recently initiated by debtor countries, in which heterogeneous banks choose freely between selling or retaining their debt claims. We show that menu deals can facilitate discrimination across heterogeneous banks because of imperfections in the secondary market for debt....

Debt reduction at market terms has been criticized as too expensive from the point of view of the debtor. The recent reduction agreements following the “menu approach” are partially concerted, but they also possess some elements of voluntariness. This raises two issues: (a) what is the conceptual justification for such financial arrangements/ and (...

This paper examines recent financial flows to and from the Middle East with two objectives in mind: first, to assess the levels and types of recent flows in order to understand their past contribution to investment and growth, and thereby to gain a better sense of what might be feasible in the future; and second, to explore the need for a new appro...

This paper explores the issues and choices thrown up by the current state of development in the Occupied Palestinian Territories and the economic agreements that could emerge from the on-going peace negotiations. The present economic crisis is related to the uneven pace and distorted nature of growth in the past, as well as to the sequence of adver...

Closed-end national index funds (NIFs of country funds) invest primarily in the stocks of the originating countries, such as Brazil, India, and the Republic of Korea. They are typically traded in the organized exchanges of industrial countries, such as the United States and the United Kingdom. Although NIFs have not raised large amounts of external...

The authors show that debt buybacks could convey valuable information about indebted countries' willingness to invest and increase debt repayment when creditors are less informed than debtors. In an informational equilibrium, unwilling countries do not repurchase a part of their debt, but willing countries do; and creditors increase debt repayments...

The authors theoretically analyze country funds, focusing on emerging economies in which capital markets are not readily accessible to outside investors. They study country-fund pricing and the associated policy implications under alternative variations on segmentation of international markets. They show that country funds traded in the developed c...

This study analyzes the effects of publicly funded continuous vocational training and retraining programs in the former East Germany after unification with West Germany in 1990. It presents econometric estimates of the average gains from training in terms of employment probabilities, earnings, and career prospects after the completion of training u...

The authors review the case for market-based debt reduction and concerted debt reduction. They explain the new menu-based approach to debt reduction and discuss why it may be preferred to market-based and concerted debt reduction. In a review of the five recent debt-reduction agreements, they find that the menu approach indeed achieved debt reducti...

We argue that the disincentive effect of a debt overhang is generally small and consequently that debt reduction does not lead to important efficiency gains on this account. Instead, we develop a framework that highlights the inefficiency created by the liquidity constraint faced by over-indebted countries. Often, adjustment/investment opportunitie...

We introduce adaptive learning behavior into a general-equilibrium life-cycle economy with capital accumulation. Agents form forecasts of the rate of return to capital assets using least-squares autoregressions on past data. We show that, in contrast to the perfect-foresight dynamics, the dynamical system under learning possesses equilibria that ar...

This article examines the mechanics and attributes of concerted debt reduction agreements that offer creditors a choice between exit and relending options. The menu approach sets prices for different choices that implement a decentralized equilibrium. When banks can commit to choose from the menu and are not allowed to free ride, a menu can be desi...

Private investors have an important role toplay in the ongoing process of reform in Eastern Europe. So external creditworthiness is crucial to a successful transition. Large government borrowing crowds out the formation of private contracts between international investors and domestic entrepreneurs and firms. Given the overall credit ceiling in int...

The report explores how the formulation of debt repayment policies can be affected by the nature of the decisionmakers and the strength of various interest groups. The authors argue that small penalties can be enough to deter default if they hurt the interests of groups that are closely associated with policymakers, especially when the costs of deb...

Methodological Issues in Evaluating Debt-Reducing Deals A menu-based debt-reducing deal is a concerted agreement between a debtor and its creditors on a set of financial options the creditor banks can freely choose from. The novelty and complexity of the menu-based debt reduction deals make it difficult to see the economic principles that underlay...

There might exist combinations of prices and types of contracts under which external debt reducing schemes can benefit a highly indebted country and not hurt creditors. The overall benefits of such schemes are contingent on the existence of efficiency gains associated with debt reduction or contract transformation. For the debtor, the benefits depe...

The World Bank, the IMF, and Japan have provided funds for debt reduction programs. There is some confusion, however, about how such programs work and about whether debtors and their creditors can expect to gain from any of them. This paper provides a review and consolidation of what economists understand about market-based schemes and debt restruc...

This study provides evidence that bank characteristics are significant determinants of commercial-bank choice behavior when confronted with a menu of options. It develops a theoretical model of bank choice behavior and empirically tests its implications using data from the 1988 Brazilian financing package. The empirical results show that bank chara...

When sovereign debt trades at a discount on secondary markets, a market buyback increases the secondary market price. The wealth of private creditors increases because part of the funds used in the repurchase is a transfer payment to them. This transfer of resources can be mitigated by imposing a capital gains tax on the remaining debt. The authors...

Despite the productive inefficiencies generated by policies of export promotion and of import substitution, such development strategies can improve welfare when used in conjunction with a debt strategy. Export promotion can increase the availability of foreign finance, and import substitution can reduce debt service. When the latter strategy is opt...

The Brady Initiative has introduced official support for debt reduction. This new phase in the debt strategy requires a new set of tools to analyze debt deals and to study the impact of a deal on the debtor country. This paper discusses first the methodological issues involved in evaluating the different individual components of a debt deal, i.e.,...

External debt depresses investment and lowers economic growth below its potential through its negative effect on liquidity and expected profitability. These effects can pull a country into a downward spiral in which both the debtor country and creditors lose. This article considers the possibilities for revising contracts between a debtor and its c...

Six years into the debt crisis, questions about the relevance of policy measures to alleviate the crisis still abound. Conditionality by international financial institutions and rescheduling by commercial creditors have been dismissed in favor of debt reduction as strategies for restoring the creditworthiness of heavily indebted countries. This pap...