By Dr. Mohamed Sami Ben Ali (Associate Professor of Economics, Qatar University)
Economic growth can be defined briefly as an increase in the level of output that an economy can produce. The literature on economic growth examines whether the sources of economic growth stem mostly from technological progress, physical capital accumulation, or human capital accumulation. Besides, it is a fundamental debate about a simple question: Why does rapid growth occur in some countries when some others cannot achieve such a performance? The main concern is to disentangle the contributions of capital accumulation and technological progress from this growth process.
The basic literature on sources of economic growth is an attempt to calculate the contributions of the various factors and the level of technology to the growth rate of the output. A pioneering work on economic growth is the study by Solow in 1957. The author uses a production function by connecting output to inputs that are capital and labor-based in physical units. Solow phrases any kind of shift in the production function as “technical change.” This study leads many further studies in the literature.
A recent study by Ben Ali et al. (2016) explores the sources of economic growth for the MENA region and contributes to the debate over whether they stem from technological progress, physical capital accumulation, or human capital accumulation. The study covers the period from 1970 to 2011 for 15 MENA countries namely: Bahrain, Egypt, Iran, Iraq, Israel, Jordan, Kuwait, Malta, Morocco, Qatar, Saudi Arabia, Syria, Tunisia, and Turkey. The authors find evidence that economic growth stems from capital accumulation rather than total factor for all the MENA countries except Israel and Saudi Arabia. They also note that for the fast growing economies among the sample (Egypt and Turkey), the main source is capital accumulation, and the contribution of technological progress is unimportant. A similar interpretation is evidenced for Sudan and Morocco. For those countries, it is important therefore to raise savings and capital accumulation. For Iran, although the contribution of capital stock is very high, the growth rate of output per labor is low. Likewise, Qatar grows negatively although it shows a high contribution of capital stock. These results point to policies that focus on technological progress rather than capital accumulation for Iran and Qatar. Conversely, Saudi Arabia grows negatively although it shows a high contribution of technological progress. This result indicates the importance of policies on capital accumulation rather than technological progress for Saudi Arabia.
Ben Ali, M. S., Senay A and Mert, M. (2016). Sources of Economic Growth in The Middle East and North Africa, in Ben Ali, M-S. (eds), Economic Development in the Middle East and North Africa (MENA), Challenges and Prospects, Palgrave Macmillan. New York.