The Improving Economy of Middle East - Essay Example

The Improving Economy of Middle East Introduction The Middle East economy is very sundry comprising of countries like Iran, Israel, Kuwait, Cyprus, Turkey, United Arab Emirates and Egypt among others. These countries’ economics range from the exportation of hydrocarbons, to socialist economies that are government led as well as free market economies. This is a region very well known for its oil production and exportation. Oil is a product that can be said to have significantly impacted on the entire region’s economy through wealth generation and labor movement. However, it’s also worth noting that many countries in this region have diversified their economies over the past recent years. Publications of the web and science database indicate the standard economic growth of Middle East to be almost faster than that of the world by four times (specifically Turkey and Iran). Contributors’ Biographies Member 1 His name is XX. His area of interest in global studies is the economics and how regional integration affects it. Over the years, we have witnessed the adverse effects of a nation that is divided. States that work in collaboration with others benefit from a broad base of knowledge as well as subsidized trade duties. They also enjoy the benefit of foreign aid and trade from the other states with whom they are partnering with. It also promotes a peaceful co-existence among the nations that are integrated. Most of all, they advance their economies of scale and advice one another on the best ways to make their individual state economies to grow. Of particular interest to this member is the economic growth pattern of the Middle East over the years. He believes though the economy was quite influential sometime back, it experienced some setbacks and stumbled a little. Besides the issue of national and economic integration, his argument is that a states organization of its political economy is very key if the state is to realize sustainable economic growth (Alan & John). Member 2 This member by the name YY believes a state’s economy is dependent on a number of factors. He is particularly interested in studying the demographic trends of states in order to unveil the linkages between demographic change, food, water, urban life, and regional economic integration and the state’s economy. In demographics, he focuses on the literacy levels of the natives, income per capita, population growth rates, and employment opportunities among others. These issues he argues that, are of prime importance as they are directly linked to the economy of the state. For instance, a states per capita income describes its GDP when cross-examined with the working population. The level of education as well dictates the number of people who have the potential to acquire jobs that require certain educational qualifications, and in the long-run, contribute to the nation’s economic growth. He therefore suggests that more integration of all these factors together with reasonable market policies can lead to a more improved economic status of the Middle East (Ravallion 20). Member 3 The third member ZZ has a key interest in establishing the relationship between poverty, fiscal policies and economic growth. Unavailability of jobs leads the state experiencing lots of pressures in its limited resources to fend for its people. This automatically means that poverty is directly proportional to a poor economic growth. His interest in this area of study was aggravated by the fact that at the time when there was an influx in oil prices, people migrated to secure jobs in the oil mines and the economic status for the nation was remarkably outstanding. There was however, a reverse of the same up on the reduction of oil prices in the 1980s. Due to lack of employment, most people went back to their homelands and poverty caved in. had the policies in place at the time of economic boom been reasonable and realistic, such a catastrophe would not have stroked as he argues. Up on reading this from history, he says that h developed the interest in taking this specialty, hoping to one day save the economic crises that hits some of the Middle East states (World Bank 34). My Argument on the Economy of the middle East Middle East has witnessed both growth and decline of its economy especially in the last thirty years. There was an economic boom in the period between 1965-85 which was facilitated by the increase of fuel prices that can be closely attributed to the war between Arab and Israel of 1973 and the Iranian Revolution of 1979. As a result of the increased economic growth in the Middle East, there was a bridging of the income gap between and among the states in this region. This was due to the spanking affluence. However, much as all states experienced an increase in their national wealth, the rate of growth was not equal; some states experienced a faster growth than others. Those states with a high income included the ones on the Gulf and characterized by smaller population (Roumer & Mary 10). They actually exceeded the European levels of economies at some instances. The states in the lower end of the gap included Yemen and Jordan who remained poor among others. The GCC have however been criticized of only weakly having fulfilled their promises during the boom period and not during the time of economic crisis. Therefore there is a need to improve on regional integration and improve on the region’s political economy (Lindert & Jeffrey 10). The areas of demographic change, food, water, urban life and regional economic integration are very dependent on a country’s economy. He compared to Middle East as a glass that was half full. In the region’s quest to fight their internal benefits and conflicts, they spent close to four decades and billions of dollars that also led to millions of death of the nationals. Despite all these, the region is however prosperous, with its citizens quite educated and the nations more institutionalized. Over those four decades, they also enjoyed dollar windfalls yet their economic performance still stands at the average position compared to developing countries. The region’s performance can be attributed to the market-oriented policies that have led to a mediocre performance. This is a total waste of the opportunities they have had that they should have utilized to tremendously improve their economies (Barzilai 34). Regarding the issue of poverty in the Middle East, an increase in the oil prices led to an improved economy for the oil exporting economies as well as the non- producers, specifically through employment creation. This resulted to a raised income share even for the poor. The problem however, arose when oil prices declined between 1985-2000. Capital flows officially declined as well as remittances thus limiting jobs growth both in the construction and public sector. With the narrowing of job opportunities both abroad and at home, in the 1985, the pace for poverty reduction slowed down in the region. Even up to now, there is only little evidence of the impact that trade policy reforms have had since then on the poor whether positive or negative. Macroeconomic adjustments as well as migration and remittances have facilitated the eminent poverty dynamics. Literature Review Owing to a heightening of oil prices during the Revolution of Iran and the war between Arab and Israel, states in the Middle East enjoyed the advantage of increased revenues. Large oil producers like the UAE, Kuwait, Saudi Arabia, Iran and Iraq benefited in high export earnings form directly. In addition, the same states had very many job opportunities subject to the Gulf economies boom. Needless to say, even non-oil producing states in the Middle East enjoyed some benefits from those countries that were oil producing, in the form of foreign aid increment from the oil producing neighbors. Residents from states not producing oil migrated into the oil producing states to work as teachers, field oil workers, and construction workers among others. These immigrants sent money home to their families of incredible value to the national income e.g in the Palestine and Yemen. Money that was spent at their home location added to the growth of their national economies. This kid of economic growth led to the emergence of many social movements which saw to the reduction of infant mortality by half in the Middle East, a rise of the life expectancy by over ten years whereas enrollment in schools sky-rocketed with adult literacy rising to 53% in 1990 from 34% in 1970. As a result of the increased economic growth in the Middle East, there was a bridging of the income gap between and among the states in this region. This was due to the spanking affluence. However, much as all states experienced an increase in their national wealth, the rate of growth was not equal; some states experienced a faster growth than others. Those states with a high income included the ones on the Gulf and characterized by smaller population (Richards 19). They actually exceeded the European levels of economies at some instances. The states in the lower end of the gap included Yemen and Jordan who remained poor among others. Apparently, with the dramatic fall of oil price in 1985 December from $28 to $10 per barrel in 1986 July, the 1970s and 80s economic growth declined. This drop in oil price can be attributed to the oil’s overproduction. This resulted to a sudden drastic reduction of the huge export earnings that were foreign and that had facilitated the previous two years growth. Owing to this imminent fall-out of export earnings, people in the oil producing states in the Middle East lost their jobs, whereas those in the countries that were not producing oil lost foreign aid form those oil producing states. Being viewed as rather dynamic, self-transforming and rapidly growing economies, the Gulf Arab states were promoted in the 2000s boom years. In addition, they were also praised for their purported MENA regional economy leadership. Besides the 2010s severe financial crisis and the 2008/9 recession and its following impact on the Gulf and the rest of the region, these states were further promoted as potential leaders both for the recovery and the region’s future development. The GCC have however been criticized of only weakly having fulfilled their promises during the boom period and not during the time of economic crisis. Therefore there is a need to improve on regional integration and improve on the region’s political economy (World Bank 13). The growth and development of the economy of Middle East is however facing two challenges, one being the highly rated population growth recorded to be 3% per annum. This arithmetically means that the population will be doubling in about every 20-30 years. Only the sub-Saharan region in Africa has surpassed this kind of regional population growth in the entire world. The problem of a high population growth rate to any given state in its economic growth is that, it spawns huge stresses on the states’ resources because people need right to use to water that is clean, education, food, and medicine among others. Another strain caused by a large states’ population to its economy is the need to create massive employment opportunities for the purpose of taking up the increasing labor supply. It was estimated that about one million people of the Middle East would enter the job market in 2000 for the very first time. Unfortunately, of the one million, those who were able to secure jobs were only 200,000 (Ravallion 20). This resulted to very high levels of unemployment. The unemployment rates in Saudi Arabia are below 10% as well as in Syria while in Iran, Yemen, the West Bank and Lebanon, they remain above 30%. In some states like the Gaza, unemployment has surprisingly been estimated to be as high as 50%. Besides the effect caused by increasing population growth, there is another challenge to the Middle East’s economic growth and this is defined by the oil price fluctuations, in either directions. States in the region are trying to focus their efforts in other alternative economic activities like light manufacturing, banking, tourism and agriculture. This they do in an effort to lessen their reliance on revenues from oil. A good number of economists envisage a continued Middle East economic growth despite the fact that is not evenly distributed transversely the region. These estimates are of 3.5%, however, such a growth rate is dependent on factors like the rate of foreign investment which is currently quite low, the population growth, fluctuating oil price and the several state owned industries’ efficiencies. Conclusion Fiscal policy plays a key role in the regulation of a state’s economy. Even though prices of oil opened an opportunity window for the Gulf States, they also brought forth several problems. First of all, are the uncertainties that come with are pertinent in the boom and bust of the oil markets which to date have made it a formidable and great task to formulate and implement reasonable fiscal policies. The problem between balancing the current needs and the future requirements, the wise management of the revenues obtained from the very finite oil reserves, the equity issues of intra-generations, and fiscal sustainability should be properly addressed. It would be prudent if VAT replaced custom duties substantially, a key source of non-oil revenue which is at the risk of being lost due to the agreements between the GCC and other key trading partners of free trade (Page 19). A well designed VAT would surely assist in advancing economic integration thereby enhancing trade and exports. A proper sequencing of VAT can positively impact on the poor and the aspect of inflation a step towards progression in regard the replaced custom duties. A greater amalgamation for goods and services into the world market is very relevant in order to reduce poverty thereby improving the economy of the Middle East. There has been a notable upsetting downward long-run trend in this region about total factor production levels. The issue of limited scope for further movement and growth, and the potential success in poverty reduction should solely be aimed at improving economic growth and productivity in the region (World Bank 19). Looking at the relationship between trade (especially export trade), change in productivity, as well as reduction of poverty and growth, there will be a need for efforts acceleration by the states’ governments with the aim of condensing biases of anti-export and the promotion of non-traditional exports for the sustenance of poverty reduction in the region. 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Does Economic Growth Reduce Poverty?” Technical Paper. Harvard Institute for International Development. Cambridge: Sage, 1997. Print. World Bank. The East Asian Miracle: Economic Growth and Public Policy. Oxford: Oxford University Press, 1993. Print. World Bank. Hashemite Kingdom of Jordan: Poverty Assessment. World Bank: Washington, DC, 1994. Print. World Bank. Globalization Growth and Poverty: Building an Inclusive World Economy. New York: Oxford and the World Bank, 2001d. Print. Read More