Intro

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Introduction

This paper investigates the link between trade openness, government spending and institutions and their effect on economic growth in a selected Middle Eastern and North African countries - Egypt, Morocco, Algeria, and Tunisia – which is likely to mirror the general pattern on the rest of MENA countries. From a broad perspective, the MENA countries’ economies appear stagnated with a growth rate less than 3% (nearly 2.8%) for the third time in as many years for the financial year ending in 2015, according to a report by the World Bank (2015). Some of the factors that hindered a short-term recovery were low oil prices, global economic slowdown, and conflicts in the MENA countries. on the selected MENA countries in this study, only Egypt and Morocco have registered a steady economic growth between 1975 and 2015. Algeria and Tunisia, like other MENA nations, grow at a slow rate. In particular, Algeria was hit by high fiscal spending and low prices of oil (The World Bank, 2015). For that reason, the World Bank expected its annual economic growth to stay at 2.8 percent in 2015. At the same time, it also projected that Tunisia's growth would prove worse. Following protracted stagnation of its economy within the Eurozone and two terrorist attacks in the same year, the World Bank estimated that the real growth of Tunisia’s GDP would drop by 1.5% (from 2.3% in 2014 to 0.8% in 2015).

This paper also evaluates this economic relationship with the sole focus on the period between 1985 and 2015. Although these countries collectively influence the entire economy of North Africa, the paper will tackle all the selected countries independently. In particular, it will examine how these economic factors affected the economic development in Egypt; then Morocco; then Algeria; then Tunisia. Besides these factors, the first part of the research examines the International Trade Theory and the Growth Theory in line with their influence on trade and economic growth. This section also outlines the benefits of trade liberalization and the static and dynamic gains from trade. The second part of the paper reviews the relationship between imports and economic growth. In details, the second section of the paper covers the verdicts on whether imports could be beneficial for economic growth; effects of different import components on economic growth; and economic growth with limited import capacity.

In the third part of the study, we examined the relationship between exports and economic growth by evaluating export diversification and growth; the gains and losses derived from exportation; and economic growth with limited import capacity. The forth section of the paper covers the relationship between government spending and economic growth. Here, the increase in government expenditure (Demand-Side Arguments - Supply-Side Factors); spillovers from a government spending shock to trade; and policy implications of spillovers from fiscal expansions, are reviewed. The fifth and sixth sections analyze the effectiveness of institutions on trade openness, import, export, government spending and economic growth empirically, respectively. Lastly, I concluded this study with conclusion, summarizing the paper’s main points. Not only does this part gives the relevance of this research but also points out its areas of application.