Time and Consumption Poverty in Turkey

April 18, 2014

By Thomas Masterson (Levy Economics Institute of Bard College), Emel Memis (Ankara University and Levy Economics Institute of Bard College), and Ajit Zacharias (Levy Economics Institute of Bard College)


Policy Brief:

The official measure of poverty in Turkey stipulates a minimum level of consumption expenditures that is supposedly required for attaining a minimum standard of living.  As in other countries, the stipulation ignores the fact that unpaid household production activities contribute to the fulfillment of material needs and wants that are indispensable for attaining this standard. Consequently, for households that lack the time necessary for performing such activities, the official consumption poverty line understates the requisite expenditures. If the household does not have the time to perform the essential activities of household production, it will have to spend money on market substitutes in order to reach the basic living standard—a fact that is not reflected in the official poverty line. To get a more accurate calculus of poverty, we have developed the Levy Institute Measure of Time and Consumption Poverty (LIMTCP), a two-dimensional measure that takes into account both the necessary consumption expenditures and the household production time needed to achieve a minimum standard of living.

Our estimates for 2006 showed that the LIMTCP poverty rate of individuals was 10 percentage points higher than the official rate (40 percent versus 30 percent). Ignoring time deficits in household production resulted in undercounting the poor by a large margin: the ranks of the poor stood at 29.0 million by our reckoning, compared to 21.4 million persons according to the official measure, indicating the existence of 7.6 million hidden poor. The consumption shortfall of poor households was also greater than implied by the official statistics (1.74 times greater). Among the rural areas of Turkey, where poverty is generally considered more pervasive, we found that 58 percent of individuals lived in poverty, compared to 30 percent in urban areas. Differences in the incidence of poverty between urban and rural areas reflect differences in demographic structure, as well as deep-rooted disparities with respect to employment opportunities and earnings.

Long hours on the job are the main proximate cause of time deficits for both men and women—but the effect on women is more drastic. Among full-time workers, the time poverty rate of women was nearly twice that of men (70 percent versus 37 percent), and among part-time workers it was more than nine times as high (37 percent versus 4 percent). This suggests that the source of the gender difference in time poverty does not lie mainly in the discrepancy in hours of employment; rather, it lies in the greater share of household production activities undertaken by women. In fact, we estimated that about one million nonemployed women were time poor because of the relatively high share of household production activities they were required to fulfill.

We also found a higher incidence of time poverty in consumption-poor as compared to non-poor households (65 percent versus 37 percent). Similar disparities across the poverty line can also be observed for employed men (42 percent of the consumption-poor were in time poverty, versus 29 percent of the consumption-non-poor) and women (68 percent versus 48 percent). Consumption-poor urban and rural women had the highest rates of time poverty. Since the majority of the rural, time-poor employed women work without pay on the family farm or enterprise, the impoverishing effects of time deficits may be harder on them than on wage workers. Making work pay and providing the support needed to reach the minimum required consumption is vital for the rural population.

The official poverty rate for adults may be reduced from 26 to 11 percent and the LIMTCP rate may fall from 36 to 26 percent if every nonemployed but employable adult becomes employed in a job that best fits (in a statistical sense) their characteristics (such as age and educational attainment). These substantial reductions in poverty—suggested by our microsimulation model—would still leave much to be desired. Under the prevailing patterns of pay and hours of employment,the simulated LIMTCP poverty rate is practically identical to the actual (presimulation) official rate. Women’s conditions of employment are crucial for the impact of job creation on poverty alleviation, because most of the employable (but currently nonemployed) persons are women. The occupational segregation and earnings disadvantages confronting women workers are well-known. Our study also points toward the impoverishing effects of time deficits on women with low potential earnings.

Despite a recent rise, an exceptionally low female labor force participation rate, far lower than that of countries with similar levels of per capita GDP, still remains as a “Turkish puzzle.” In fact, in recent years, promoting women’s employment as a contributor to higher economic growth has become a key priority for policymakers. In the context of the current policy agenda, our findings highlight the potential of carefully designed employment-centered policies to move the country toward inclusive economic growth and gender equality.

Women’s Education: Harbinger of Another Spring?

March 2, 2014

By Mehmet Alper Dinçer (Education Reform Initiative, Sabanci University), Neeraj Kaushal (Columbia University and National Bureau of Economic Research) and Michael Grossman (City University of New York Graduate Center and National Bureau of Economic Research)


Policy Brief:

Economists argue that more educated individuals are more efficient producers of health and more educated parents are more efficient in producing healthy children.  Knowledge helps parents make informed decisions on their children’s nutrition and healthcare. It influences health-related behaviors (such as smoking, drug abuse, binge drinking) and lifestyles (e.g. physical exercise), and parents’, in particular mother’s, health behavior and lifestyle impact child health (e.g. birth weight). Parental education is also the most basic component of socio-economic status, which according to epidemiologists is the key determinant of own and child health (Adler & Newman, 2002). Further, education may affect attitudes towards gender equality empowering women (Mocan & Cannonier, 2012). Because mothers are often the primary caregiver for infants and young children, their empowerment is likely to channel family resources towards mother- and child-wellbeing.

Economists, however, also quibble over empirical evidence to support these hypotheses. Because genetic endowments are a key determinant of a child’s health, it is challenging to provide convincing evidence that the simple association (correlation) between parental education and child health, documented in many studies, implies causality: that parental education improves child health. Arguably, heritable ability may result in more able women seeking higher education and having more able children who have better health (Behrman & Rosenzweig, 2002). Further, future orientation may cause mothers to acquire more education and invest in their children’s health (Fuchs, 1982). Similarly, establishing causality between mother’s education and early marriage, early child-bearing, and fertility outcomes is a challenge because low level of empowerment and high dependency may result in women marrying early and having children thus forgoing education. This is an important issue in many Middle Eastern countries where marriage and child bearing in adolescence are high. For instance, according to the Turkey Demographic Health Survey 2008, approximately 17% of ever-married women aged 20-45 in Turkey are married before the age of 16 and 13% have a child before they turn 17.

In a recent study, we used a “natural experiment” in Turkey to study the causal effect of education on women’s fertility, empowerment, and their children’s health (Dinçer, Kaushal, and Grossman, 2013). In 1997, Turkey passed the Compulsory Education Law that increased compulsory formal schooling from five to eight years. Individuals born after 1985 (who were 11 or less in 1997) were the target of the law.  To accommodate the expected increase in enrollment, the government devoted additional resources on school infrastructure and in hiring new teachers and these investments varied across the sub-regions of Turkey. In our experiment, we formed a treatment group of women who were born between 1986 and 1990 and were affected by the legislation and a corresponding comparison group of women who were born between 1979 and 1985 and were not affected.  We took advantage of variations across cohorts in the number of primary school teachers in the sub-region of residence at age 11 to construct an “instrument” that we applied to predict the educational attainment of young women resulting from the Compulsory Education Law. The predicted education variable, which is independent of heritable traits and a future orientation, is then used to estimate the effect of education on a variety of outcomes experienced by the treatment group of women and their offspring from information obtained when the treatment cohort was between the ages of 18 and 22 and the comparison cohort was between the ages of 23 and 29.

We find that a 10 percentage point increase in the proportion of ever married women with eight years of schooling lowered the number of pregnancies per ever-married woman by approximately 0.13 and the number of children born by 0.11. There is also some evidence of a decline in child mortality caused by mother’s education. Further, our analysis shows that a 10 percentage-points increase in the proportion with eight years of schooling raised the proportion of women using modern family planning methods by eight to nine percent and the proportion of women with knowledge of their ovulation cycle by five to seven percent.  However, we find little evidence that schooling changed women’s attitudes towards gender equality.

From this we infer that the decline in fertility and child mortality (in some models) that we observe could not be on account of changes in women’s attitudes towards gender inequality resulting from increased education. It is more likely that the decline in fertility and child mortality that we observe are on account increases in age at first marriage, age at first childbirth or increased use of contraceptive methods and improvements in women’s understanding of their ovulation cycle. It might be that attitudes are slow to change and that the content of education in classrooms is an important factor when it comes to changing attitudes.


Adler, Nancy E., and Katherine Newman. 2002. “Socioeconomic Disparities in Health: Pathways         and Policies.” Health Affairs, 21(2), 60-76.

Behrman, Jere R., and Mark R. Rosenzweig. 2002. “Does Increasing Women’s Schooling Raise            the Schooling of the Next Generation?” American Economic Review, 92 (1),323-334.

Dincer, Mehmet Alper, Kaushal, Neeraj, & Grossman, Michael. 2013. “Women’s Education:      Harbinger of Another Spring? Evidence from a Natural Experiment in Turkey.” NBER Working Paper No. 19597.

Fuchs, Victor R. 1982. “Time Preference and Health: An Exploratory Study.” In Economic       Aspects of Health, ed. by V.R. Fuchs. Chicago: University of Chicago Press, 93-120.

Mocan, Naci H., and Colin Cannonier. 2012. “Empowering Women Through Education:           Evidence from Sierra Leone.” NBER Working Paper 18016.


Figure 1: Gross enrollment rate in grades 6-8 (number of students enrolled in grades 6-8 divided by population of children aged 11-13)

The Real Exchange Rate and External Competitiveness in Egypt, Morocco and Tunisia

February 10, 2014

By Zuzana Brixiova (Africa Development Bank), Balázs Égert  (OECD) and Thouraya Hadj Amor Essid (Monastir University)

Disclaimer: This policy brief is based on the Working Paper of the African Development Bank No. 187


Policy Brief:

A real exchange rate that is broadly aligned with its equilibrium value is an important part of a country’s macroeconomic and external competitiveness framework. Persistently misaligned real exchange rates can cause a misallocation of resources between tradable and non-tradable sectors and negatively impact labor market dynamics. Reduced external competitiveness due to over-valued exchange rate hampers exports, aggregate demand, growth and job creation. Besides the longer-term implications, real exchange rate misalignment can lead to inflationary pressures and even trigger speculative attacks. When setting their exchange rate policy, countries also need to balance their goals of reaching competitiveness and macroeconomic stability.

In Egypt, Morocco, and Tunisia concerns about real exchange rate misalignments have prevailed for some time given the countries’ high unemployment, stagnating global export shares, and low the global financial crisis and after the 2011upheaval, with inclusive growth and job creation once again topping the countries’ economic policy agenda. By providing accurate signals to producers, the real exchange rate can help generate competitive jobs via exports. It can also help reduce income inequalities by raising the workers’ marginal revenue product. To be effective, the aligned real exchange rate needs to be complemented by other sound macroeconomic policies and enabling business environment.

As shown by their low and stagnating shares in global exports, Egypt, Morocco and Tunisia have been facing external competitiveness challenges. Low and constant (or marginally rising, as was the case of Egypt) export shares help explain why the aggregate demand growth in these countries has remained subdued and not generated enough ‘decent’ jobs in export sectors. The three North African economies are less diversified than some other emerging market economies at comparable levels of development. Europe accounts for a disproportionate share of their export destinations, reflecting geographical closeness and long-established business ties.

This paper aims to find out whether the real exchange rate misalignment contributed to the weak external competitiveness (e.g., limited export value added and diversification) in the three North African countries. To this goal, it estimates the real equilibrium exchange rate for the past three decades, using the stock-flow approach. This approach differentiates between (i) the medium-term undervaluation caused by the Balassa-Samuelson effect (productivity catch up) that is unlikely to cause abrupt adjustments and (ii) misalignment caused by other factors than productivity differentials. It is particularly suitable for emerging markets that can go through structural and productivity changes impacting the medium-term path of the real exchange rate.

The empirical analysis is based on annual data series for the past three decades, obtained from databases of the African Development Bank and IMF. The estimate results of the real exchange rate models, obtained using the DOLS and ARDL models. For each country, the baseline model linking the real exchange rate to productivity and net foreign assets was estimated first. Subsequently, additional control variables including the government spending ratio, openness, the investment ration and terms of trade were added one by one to the baseline model.

Our results indicate that in the long run, decreases in net foreign assets, equivalent to capital inflows, result in an appreciation of the real exchange rate. Regarding the impact of productivity, the coefficient estimates are generally positive in Egypt, indicating that increases in productivity lead to real exchange rate depreciation. In Morocco the impact of productivity on the real equilibrium exchange rate is significant, but negative, indicating that the increase in productivity has the traditional Balassa-Samuelson effect. In Tunisia productivity has an ambiguous impact on the real exchange rate. Further, a greater openness would lead to a depreciation of the real exchange rate in all three countries. Finally, improvements in terms of trade would lead to real exchange rate appreciation in Egypt and Morocco, most likely via inflation differentials.

Regarding the misalignment between the actual real exchange rate and the long run real equilibrium exchange rate, the paper found that: For Tunisia, the low misalignment in recent years can be explained by the abandonment of the real exchange rate targeting and gradual introduction of the exchange rate flexibility. The real exchange rate of Egypt was overvalued from the mid-1990s until mid-2000s and in recent years, following the rising inflation rate and current account and/or fiscal deficits. In Morocco, misalignment has been low in recent years. The county experienced a short overvaluation in mid- 80s entailed by the current account deficit, followed by the devaluation in the late 1980s. Morocco’s equilibrium exchange rate’s seems to have not been affected by the global economic crises, in part due to prudent monetary policy.

In summary, utilizing – for the first time for North Africa – the stock-flow approach to estimating the real equilibrium exchange rate, this paper estimated misalignments of real exchange rates in Egypt, Morocco, and Tunisia during the past three decades. While Egypt experienced protracted misalignment in the past and recent years, real exchange rates in Morocco and Tunisia stayed closer to their equilibrium values. However, in all the export growth has been lagging some other emerging market economies. The paper suggests that non-price structural factors such as labor market flexibility, skills, and investment climate are a key for unlocking the export and productive potential of the three North African countries. Intra-regional trade – both with North Africa and the rest of the continent – together with greater orientation to fast growing emerging markets could also raise countries’ external competitiveness.




Employment Status, Income Equality, and Poverty in Egypt

February 2, 2014

By Hoda Abd El Hamid Ali


Policy Brief:

The focus of this paper draws on the employment, income equality, and poverty linkages, without a better understanding of such relationship, development strategies aimed at poverty reduction, social justice may be incomplete, as employment is the principal channel through which economic growth reduces poverty. However access to employment is not sufficient to reduce poverty and inequality, the type and quality of work are also important. Many youth , housewives, or retired people are trapped in low-productivity, low or unpaid or other types of work that fall short of their aspirations and that often do not open opportunities to move to more permanent, higher-productivity and better-paid positions.

Therefore, understanding the links between different types of employment status, poverty, and social justice are critical for formulating policy, as many reforms are needed regarding labor regulations to reduce disincentives for hiring and divert job seekers in to the informal sector, where workers do not enjoy the same level of protection as in the formal economy, revisiting public sector hiring practices, active labor market polices needed also to lower unemployment and to promote youth and female employment, and reforming the education system.

This Paper aims first, to analyze and test the factors that influence different practices and participation in the Egyptian labor force, more specifically what determines an individual’s choice to work for paid employment (full or part-time or self employment), or has no paid employment (students of all kinds and levels, household duties, retired or pensioned, unemployed, and others), and to test if the impact of these factors will differ according to gender. Second, linking these employment statuses with poverty and income equality, the paper examines the impact of an individual’s choice of a specific employment status, and his/her perception regarding the importance of having more equal distribution of income on his/her perception regarding the importance of poverty, as the most serious problem in his or her country.

The results underline the importance of analyzing the factors that affect the different employment and unemployment (paid and unpaid employment) practices in the Egyptian labor force and analyzing the linkages between employment, poverty, and income equality, as nowadays the country is struggling and in its ongoing movements towards democracy. Reforming the labor market in Egypt is a major challenge for the country for poverty reduction, creating more social justice and a successful economic transition.

This paper assesses the main micro- determinants of employment status in Egypt, and the joint impact of employment status and income equality on poverty by gender applied on a sample of 3050 individuals obtained from the (2005-2008) wave of the World Values Survey (WVS), the study concludes that there is a discrimination against women’s role in the economy that make them less accessible to better education, health, and technical skills, and in returns to better work.

Women also are more affected by the inequality in distribution of income which makes them also more affected by the poverty problem in Egypt. Supporting the poor especially women, who are often poor, less accessible to better employment with specialized programs and other sorts of assistance seems highly justified. Social security should be reformed to cover all women, reforms are also needed for pensions, and unemployment insurance which was almost non-existent before 2010, to cover all retired, old age, care –giving, and unemployed individuals.

The study also finds that employment status has weak and insignificant impact on poverty; such findings are resulted from the weak relationship between employment and growth. What is needed above all is an employment policy that puts the emphasis on strengthening the growth-employment linkages through promoting highly quality jobs and the notion of decent jobs in particular for the poor. The study also concludes that there is a positive and strong relationship between females’ perceptions regarding the importance of having more equal distribution of income and their perceptions regarding the importance of the poverty problem in the Egyptian economy.

Globalization and wage inequality: the case of Tunisia

November 20, 2013

By Aicha Amaidi


Globalization improves the structure of production by generating a greater use of capital and thus greater demand for skilled relative to unskilled labor. Thus, with the opening and the increased demand for unskilled labor would decrease inequality in developing countries. According to the traditional literature (the theory of international trade and the Stolper Samuelson), trade liberalization should raise compensation of abundant factors. Thus, developing countries are better placed than the developed countries for producing goods and service intensive unskilled labor. The result is a downward pressure on the wages of unskilled workers in developed countries and, conversely, an upward pressure on those of their counterparts in developing countries. However, some extensions to this theory indicate that some developing countries may experience an increase their wage inequality. In this context, we’re trying to verify these contributions in the case of Tunisia.

The study of the impact of globalization, in particular the development of trade and technical progress on the change in qualification or wage inequality poses difficulties for most studies. The major difficulty is to distinguish the influence of trade and international trade of other determinants of changes in the qualifying developing countries. In fact, all the methods of analysis of existing research on the impact of technological developments on the labor market, including wage inequality remains until today marked by uncertainty. In fact, the non-availability of data and the difficulty of measuring technical progress may be the cause of this uncertainty.

Because of the importance of structural economic changes during the period (1983-1993), which is characterized by the implementation of a structural adjustment program (SAP) characterized mainly by a partial liberalization of the Tunisian economy the decomposition has been redone for the two sub periods 1983-1987 (the period prior to the SAP and economic liberalization) and 1988-1993 (period after SAP and economic liberalization).

The complementarity between capital and qualification was in favor of skilled workers and that by increasing their earnings at the expense of unskilled workers. The diffusion of new technologies and capital accumulation largely explain the increase in inequality in wages between skilled and unskilled workers.

In addition, increased investment in research and development and capital accumulation largely wage inequality between skilled and unskilled workers in the Tunisian manufacturing. Plus the rate of capital accumulation is, the greater will be the demand for skilled workers from industries.

The econometric results have some limits. Thus, the series of all variables are short to obtain satisfactory results. In addition, the reliability of the results cannot be explained by the particular nature of the variables used in the model, such as variable salary made based on a number of assumptions.

Do Exchange Rates Affect Inflation? Evidence from Emerging Market Economies?

November 6, 2013

By Baki Demirel, Baris Alpaslan and Emre Guneser Bozdag


Policy Brief:

In this study, the findings show that inflation targeting policy plays a crucial role in managing expectations that may obstruct monetary policy in emerging market economies, thereby enhancing the central bank credibility and succeeding inflation-targeting.  The results of this research support the idea that the success of inflation targeting may help emerging market economies enhance de-dollarization and reduce pressure on general level of prices.[1]

The findings of this study are important for central bank independence implying the price stability-oriented monetary policy. However, due to the fact that some central banks in emerging market economies that have not successfully adopted a floating exchange rate regime, their independence has become questionable; it may be due to an increase in risk appetite.[2] During a “risk on” period currency appreciation and an increasing current account deficit due to credit expansion is a problem that emerging market economies may face whereas during a “risk-off” period there might be a sudden stop in investment activities in those economies, in response to global economic patterns.[3]

Another problem in emerging market economies adopting inflation targeting is that their credit markets are heavily dependent on banking globalization.[4] The interaction between banking globalization and the central bank is established through the activity in interest rates which might be another cause of a sudden stop in investment activities; implying that  under a floating exchange rate regime it would preclude independent monetary policy, deactivate the well-known “impossible trinity” or  the “Trilemma”, thereby leading to a fear of floating.

Emerging market economies should pay much attention to movements in exchange rates and exchange rate mobility, thus weakening the impact of the control that central banks have on interest rates, and that despite a floating exchange rate regime, exchange rates are thought of as a policy tool. In general, therefore, it seems that emerging market economies may move further away from their core mandate of price stability, in which case macroprudential regulations and even managing capital inflows might be a tool to use.[5] Consequently, central banks should tackle financial stability as well as price stability.

The financial crisis that erupted in 2007-2008 led to changes in managing monetary policies. Prior to the crisis, critics argued that central banks with price and output stability could ensure financial stability and interest rates could be a tool in accordance with this purpose. However, the crisis led to the fact that there is no dichotomy between monetary policy and financial stability. In other words, microprudential regulations that are designed for financial institutions cannot eliminate risks caused by disruptions in the general sense, which is the case for emerging market economies. In general, therefore, it seems that macroeconomic stability is sustained in line with price stability, output stability and together with financial stability.

Last but not least, it can thus be suggested that institutions should be founded for central banks to maintain price and exchange rate stability and to implement macroprudential policies. We believe that central banks should play an active role in macroprudential policies.[6]

[1] Taylor, John B., “Low Inflation Pass-Through, and the Pricing Power of Firms”, European Economic Review, 44: 1389-1408, 2000.

[2] Calvo, Guillermo, Reinhart, Carmen M, “Fear of Floating”, NBER Working Paper, 793, 2000.

[3] IMF, “Global Financial Stability Report: Transition Challenges to Stability”, World Economic and Financial Surveys, International Monetary Fund, October 2013.

[4] Goldberg, Linda, “Banking Globalization, Transmission, and Monetary Policy Autonomy”, Federal Reserve Bank of New York, Staff Reports, No: 640, September 2013.

[5] Ostry,  Jonathan D., Atish R. Ghosh, Karl Habermeier, Luc Laeven, Marcos Chamon, Mahvash S. Qureshi, and Annamaria Kokenyne, “ Managing Capital Inflows:  What Tools to Use”, IMF Staff Discussion Note”, April 2011.

[6] Ostry, Jonathan D., Atish R. Ghosh, Marcos Chamon, “Two Targets, Two Instruments: Monetary and Exchange Rate Policies in Emerging Market Economies”, IMF Staff Position Note SPN/12/01 February 29, 2012.


Education Attainment, Further Female Participation & Feminization of Labor Markets in Arab Countries

August 25, 2013

By Fatima-Zohra Filali Adib, Ahmed Driouchi and Amale Achehboune 


Policy Brief:

The current paper analyzes the integrated supply chain starting from education enrollment and ending with labor markets with focus on drop-out rates in the context of Arab economies. It uses descriptive statistics and regression analysis aiming at linking education and access to labor markets for women in comparison with men while benchmarking with the economies of Eastern and Central Europe (ECE).

The attained results show that while Arab countries have an increasing trend in enrollment, they have a decreasing pattern in drop-out from school, for both genders at all education levels. Out-of-school rates for primary education for females have been decreasing from 15.3% to 13.8% in the past four years. As of 2011, there were 14.53% male out of school in comparison to 18.94% female in the Arab states. However, while the amount of decline of female out of school rate is nearly 4% over three years, the corresponding level for male is hardly 1%. This is in line with the findings of authors who acknowledged the decrease of the gender gap in  education in the Arab world. Out-of-school rates for males and females are now closer than this was the case few years ago. In tertiary institutions, the trend has been moving towards more schooling for women than for men. Reverse gender gap has started to show up in some countries. Therefore, at all levels, women are more present in schools and statistics show a significant decrease in the gap between genders.

Labor participation rates for females have been slightly decreasing in ECE in contrast with Arab countries. Running regressions using the square of the independent variables only shows quadratic relationships. Therefore, U-shaped type of association between labor market and education is present in some cases. A more accurate observation is that this relationship is mainly associated with females. In Morocco, the U-shaped trend was prevalent for males since the coefficient is both significant and negative. Just like for the simple linear regressions, the largest coefficients are associated with the UAE followed by Jordan.

Given the current economic situation of the Arab world, the feminization of the job market is progressing and is not a choice but a consequence of education. In order to develop the economies, Arab countries need to enhance the contribution of their human resources with the involvement of more women starting with enrollment and drop-out minimization. But as labor markets require skilled human resources, both public and private sectors in Arab economies increasingly need educated women. This is why education is gradually becoming the most important mean for the promotion of more females in accessing labor markets. In the present research, the average schooling years of Barro and Lee (2010) is used as a proxy for the educational level. The effect of its change on labor participation shows how feminization is induced by education. While education positively contributes to increasing labor participation for females in the Arab countries, it did not seem to be significant in the case of Central and Eastern European economies as more women are already in the job market.

Such trends have to be enhanced through enrolling more girls in education and creating more incentives to ensure the attainment of higher level of knowledge with the opening of labor markets to talents.

Structural Change in MENA Remittance Flows

August 5, 2013

By George S. Naufal and Ismail H. Genc



Policy Brief:


Blessed with generous natural endowments of oil and gas, but lacking an economically and educationally suitable indigenous population, the Gulf Cooperation Council (GCC) countries[1] have turned to foreign workers to satisfy the labor demand. Initially the source countries were fellow Arabs from the MENA region due to cultural, religious and geographical proximity. Given that the GCC is among top remitters in the world, this policy resulted in the flow of tremendous sums of income to labor sending countries in the MENA region. GCC employment policy however has changed over time shifting the interest in hiring to mainly the Indian Subcontinent.[2] We, in fact, find in our study[3] that a gradual but permanent shift in the direction of remittances occurred in early 1990s depriving countries such as Egypt of a significant source of income through overseas employment, especially that of the youth.


Our study does not directly analyze the employment issues in the labor source countries, in particular those in the MENA region. But it stands to reason that these countries have long ignored and/or failed to cope with the actual implications of the GCC labor policy shift. Naturally, labor exporting countries should have taken timely precautions to eliminate economic hardships, with likely significant social implications. However, large remittance inflows allowed receiving countries to avoid real labor market reforms. Unfortunately, the resultant impact of the aforementioned problems rendered their solutions intractable. The stress piled up on their citizens and governments. Eventually, the situation came to a full blown social explosion in 2010, toppling the long running dynasties in some countries in the Middle East. Obviously, a more focused study on the causes and effects of labor sending countries’ employment policies is needed to more precisely shed light on the impact of the implied policy failures. Yet, our study aims at pointing to a relationship between the shift in the direction of remittance flows in the MENA region and likely employment, and eventual political consequences.

[1] The GCC countries are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia (KSA) and United Arab Emirates (UAE).

[2] To such countries as India, Bangladesh, Pakistan and the Philippines.

[3] Naufal, G. S. and I. H. Genc (2013) “Structural Change in MENA Remittance Flows,” IZA Discussion Paper Series IZA DP No. 7485, (July).


July 25, 2013

The purpose of this blog is to discuss the policy implications of recent research on the MENA region. Once a month, a paper is selected by a member of the editorial board from the NEP-ARA mailing. The authors will be asked to produce a short policy brief on their research findings. This policy brief will be put up for discussion. The first post will appear in September 2013.


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