Hussein Zeaiter

Economic Development and Sub-Regional Identities

This study argues that the regions classified by the World Bank are not coherent in terms of economic structures. The special identities within each region dictate that the economic performance in different sub-regions should be determined independently. Embracing Barro’s (1991) regional uniqueness analysis, each region is divided according to distinctive characteristics. A fixed effects unbalanced panel model for 185 countries over the period 1970–2012 is used. The results indicate that explanatory variables responded differently in each group, which indicates the significant effect of the identities used to determine the division of the regions. Based on our findings, this study recommends that governments should act as follows: (1) adjust their policies so that the population grows according to the growth requirements, (2) rationalize the management of natural resource-revenues and establish a multi-sectored economy, and (3) enhance political rights and civil liberties in addition to fighting corruption.

Debt arrears as a signal of sovereign defaults

The accuracy of the inference about the risk of default is very important to the potential creditors in their lending decisions. In the literature, the usual used indicators of sovereign default in a given country (debtor) are either a rescheduling agreement between the debtor and the creditor or the presence of a credit from the International Monetary Fund (IMF). The purpose of this note is to investigate an alternative indicator of a sovereign default that precedes the default itself, and thus could be seen as an early warning signal for policymakers. In this note, debtor countries are considered “defaulted” on sovereign debt if they have a debt rescheduling agreement with at least one creditor. To address our research question, a panel dataset running from 1970 to 2010 and spanning 186 countries with at least one year of debt accumulation is used. First a Panel Probit model is estimated including all the variables along with the lags of Arrears. Then, in order to explore the role played in countries that have defaulted; we divide the sample into countries with a history of sovereign defaults, and countries with no such history. Further, in order to explore the role played in countries that have defaulted; we divide the sample into countries with a history of sovereign defaults, and countries with no such history. If a country has at least one rescheduling agreement during the years 1970-2010 then the country is considered defaulted and it is included in the “default” subset. To be included in the “no default” subset, the country should not have had any rescheduling agreement during the aforementioned period. Our results show that debt arrears are not only a good determinant of default as argued in the literature but their lagged arrears can also be used as an early warning signal for sovereign defaults. However, the accumulation of arrears does not automatically trigger a default. Moreover, the likelihood to default rises when the failure to pay debt obligations continues overtime until the actual default occurs after the obligations in the third year are not paid. These results are very crucial to both debtors and creditors. Arrears, consequently, could be used as an inducement for debtors to take preemptive actions to minimize exposure to sovereign default risk. However, even in the case of default, observing arrears will provide ample time for policy makers in debtor countries to take necessary precautionary measures.

Political Freedom and Growth

The relationship between political freedom and economic growth is considered very critical in political economics. On the one hand, political freedom is found to be positively correlated with economic growth (Lipset 1993; Przeworski and Limongi 1993; Barro 1997; Minier 1998; and Przeworski 2004). On the other hand, a number of high growing countries experienced low political rights such as: China, Saudi Arabia, and the United Arab Emirates. Besides, several democratic countries faced low economic growth such as: Greece and Spain (Arat 1988; Vanhanen 1990; Heo and Tan 2001). This study aims at examining the impact of political freedom on economic growth. Since, the literature covered three contradictory findings regarding the main driver of economic growth, an unbalanced panel of dataset running from 1970 to 2012 and spanning 92 (high and low income countries) was adopted to address our research question. The data was retrieved from the World Banks World Development Indicators (WDI) and the Global Development Finance (GDF) databases. Furthermore, classification of countries political freedom was derived from the Transparency International. This study considered the following factors as the main determinants of growth: population growth rate, mortality rate, fertility rate, human capital, government expenditures, foreign direct investment, culture and political risk. In addition, the significance of the adopted variables was compared between two models: Model 1 (high political rights) and Model 2 (low political rights). Through comparing results based on income level, it is revealed that there are more differences between countries. Countries with high political rights (even with different income levels) show that all factors have similar effect on economic growth except the fertility rate. Conversely, countries with low political rights show different results. The growth rate of population is statistically significant in high income countries but not significant in low income ones. In contrast, mortality rate is not significant in high income countries but highly significant in low income countries. Likewise, the fertility rate is statistically significant in countries with high income but not significant in countries with low income. Finally, fiscal policy (government expenditures) does not seem to be effective in both groups. In summary, regardless of the income level, the lack of political rights makes both the fiscal policy and the foreign direct investment invaluable for economic growth. Contrary to Prescott (2014), Taylor (2014), and Summers (2014), this paper concludes that foreign investors prefer high political freedom over internal policies within a country.