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1. “ Decoding the relationship : quality of governance and economic growth in MENA countries" Hayet Ben Said ( Corresponding author . [email protected] ) Higher School of Economics and Business Sciences (ESSECT), University of Tunis, Tunis, Tunisia 12 ème COLLOQUE INTERNATIONAL 06-07-08 mai 2024 Hôtel Oceana - Hammamet Sud

2. Presentation outline Introduction Theoretical framework Methodology Results Discussion Conclusion

3. Introduction The term governance has continued to attract the attention of theorists and practitioners since the works of Kaufman, and this for various reasons, the most interesting of which are the rise of poverty, unemployment, and clandestine migration. As a result, the World Bank and international donors have provided significant aid to establish the foundations of governance capable of achieving these objectives. However, the experiences of countries show that the relationship between governance quality and economic growth remains mixed, depending on the specific context , methodology , assumptions of each study and variables used .

4. Introduction Ultimately, this contribution aims to question the relationship between governance quality and growth in MENA region. For this purpose , several questions need to be asked . Is governance always linked to economic growth ? Should income promote governance in MENA countries? Do countries with governance surpluses grow slower or faster than countries with deficits ?

5. Introduction Two objectives : The first determining whether there is a link between good governance and economic growth in MENA couintries . The second investigating any potential distinctions in a countries's governance surplus and deficit and their effects on economic growth .

6. Theoretical background Governance : a mystical concept: Outdated , no single definition , instrumentalized concept, multidimensional concept encompassing various aspects of institution ( Adam Smith 1776; World Bank (1992) Williamson (1993); North (1990,2005); Gregg (2005). 2) Measurement of governance quality : KKZ is not universally applicable, The KKZ indicator is a composite indicator consisting of six sub-indicators : ( Participation and accountability ; Political stability ; Government effectiveness  ; Regulatory Quality ; The rule of law ; control of corruption) 3) Governance indicators has its limitations.

7. Theoretical background Limitations : three critical questions must be considered : what exactly is being measured ? how this measurement is determined ? Why is the measurement carried out? WHAT: What exact weighting  ? do the individual six indicators have within the overall metric ? Furthermore , it is important to note that these indicators only assess formal institutions and neglect informal institutions and the complex interplay of power dynamics between them . How : What methods were used to assess these indicators ? methodological limitations; perception’s problems ; The specificities of the countries, cultural biases Why  :  why are these metrics used as a benchmark for measuring governance excellence when the governance processes are complicated and multidimensional   Why they are still the only ones that are commonly used  ?

8. Theoretical background Why do international institutions continue to use these statistics as a basis for comparing the effectiveness of governance at the global level , without taking into account the unique characteristics of each country, its operating system and its own growth and development mechanisms ? So how can we improve governance assessment ? contextualizing indicators and exploring alternatives ( Aoudia and Meisel 2008)

9. Methodology Inspired by the research of Kaufmann and al (2004), who examined the relationship between the quality of governance and income . A regression of the per capita income level and the KKZ government level for each country produces this line. The six different metrics are added together to create the KKZ composite governance index, with each metric given equal weight . The per capita income considered for the purposes of this regression analysis is each country's actual income in 2020, adjusted to 2015 US dollars based on purchasing power parity (PPP).

10. Results

11. Results Figure 1 : The regression line for the international benchmark line, which represents the expected standard of governance quality for different real income levels . Countries above this limit have a higher quality of government than would normally be expected based on their revenue levels . Countries below this limit have less effective governance than would be expected given their income levels . The graph shows the relationship between logarithmic real per capita income (x-axis) and the Governance Index (y-axis). A similar empirical exercise has been carried out by Radelet (2004) who finds no evidence that Africa’s governance, on average, is worse than anywhere else after controlling for income levels.

12. Results The regression equation is Y= - 4.51+1.23 ln(x) with significant coefficients at the 1% level and an R 2 of 0.72, indicating a significant correlation between the real per capita income and the quality of governance . The F- statistic (353.2665579; 2,197E-39) suggests a positive relationship between the two variables, with each unit increase in per capita income leading to a 1.23 increase in government quality ( significance level < 0.005).

13. Results

14. Results Starting from the studies of Barro (2000, 2008), Alesina and Rodrik (1994), Forbes (2000), Persson Tabellini (1994), and Naguib (2015), we have employed a log-linear model. The functional form is as follows: : y = f(INV, OPEN, INF, SCOL, GOV, PIB/t) Y it = + INV it + OPN it + INF it + GOV it + lgPIB it /t+ lgPIB it-1 /t + + Estimations based on the dynamic panel model ( Roodman , 2006 and Kpodar , 2007). According to its proponents, this method provides solutions to the problems of simultaneity bias, reverse causality, and omitted variables .  

15. Results A strong empirical relationship between per capita income and governance ( According to Kaufmann and Kraay (2004) Given this conclusion, it is plausible to assume that countries with better governance can generally expect significantly faster economic growth than countries with a deficit .

16. Results Variables Coefficients INV 0,927** (2,8) OPEN -0,428 (-1,30) INF -0,203 (-0,93) SCOL 0,467*** (2,86) GOV 0,467 (0,86) lgGPIB it /t -105,508*** (-5,12) lgPIB it-1 /t -1,00** (-2,18) constante 138,07*** 4,55

17. Results ***: significant at the 1% threshold, **: significant at the 5% threshold. Values in parentheses are the Student t-values

18. Discussion The coefficient of the investment rate (INV) is significantly different from zero at the 5% threshold with the expected positive sign. This result is in line with theory and indicates that investment has a positive effect on growth. The current year's gross domestic product per capita LnPIBH1 and the previous year's (LnPIBH_1) negatively and significantly impact economic growth rates in MENA countries. The negative sign clearly shows convergence among the economies in the region.

19. Discussion he coefficient of human capital (SCOL) is significantly different from zero at the 5% threshold with the expected positive sign. This CONFIRMS one of the strong hypotheses of endogenous growth theory that human capital is a determinant factor of economic growth. Trade openness also has no impact on economic growth contrary to what classical theory asserts. The inflation rate does not exert any influence on economic growth although it has the expected sign.

20. CONCLUSION The resulat suggests that the link between governance and economic performance may not be as  strong and direct as commonly assumed . Some argue that governance has a limited impact on economic performance and its influence is viewed as secondary or of lesser importance. The main influence on economic growth comes from human and social capital, which shapes productivity . Mere improvements in governance alone will not lead to better growth outcomes if there are no corresponding advances in human and social capital. Abdelbary and Benhin (2019) found strong evidence of the significant positive impact of human capital and investment on growth but a significantly negative impact of regulatory quality .