MEDiterranean PROspects

This study aims at assessing the socio-economic and environmental effects of different societal and human development scenarios and climate change in the water-scarce southern and eastern Mediterranean. The study develops a two-stage modelling methodology that includes an econometric analysis for the southern and eastern Mediterranean region as a whole and a detailed, integrated socio-ecological assessment focusing on Jordan, Syria and Morocco. The results show that water resources will be under increasing stress in future years.

This analysis of regulatory convergence shows that substantial improvements have been made in the southern and eastern Mediterranean countries (SEMCs), yet they still suffer from key weaknesses in deposit insurance, entry obstacles, political interference and the strength of legal rights. In particular, deposit insurance systems in many SEMCs are not explicit, which could lead to uncertainties in the provision of support to banks in case of default.

In this MEDPRO Policy Paper, four population scenarios were derived that describe indicators of demographic behaviour for people living in different future political-economic contexts. The paper explores future trends in i) population growth at regional and national levels, ii) working age populations, and iii) elderly populations.

Against a background of decades of regulatory reforms aimed at fostering integration, promoting competition, efficiency and productivity growth in the financial industry, both in developed and developing countries, in this MEDPRO Technical Report the authors seek to assess the outcomes of these reform processes on the dynamics of bank efficiency – via the estimation of stochastic meta-frontiers – and convergence for a large sample of countries over the period 1997-2010.

Funded under the European Commission’s 7th Framework Programme and coordinated by CEPS Senior Fellow Dr. Rym Ayadi, the MEDPRO project started in March 2010, a few months before the Arab Spring unfurled. The three-year project aims to contribute to the reform process in the political and socio-economic agendas of southern and eastern Mediterranean countries by broadening the level of knowledge on the numerous challenges faced by the region.

This MEDPRO Technical Report explores the relationship between financial sector development and economic growth, using a sample of northern and southern Mediterranean countries for the years 1985-2009. The authors included several variables to measure the development of the financial sector to account both for quantity and quality effects. The results indicate that credit to the private sector and bank deposits are negatively associated with growth, which confirms deficiencies in credit allocation in the region and suggests weak financial regulation and supervision.

The paper builds predictive scenarios for the agricultural sector of eleven southern and eastern Mediterranean countries (SEMCs), namely Algeria, Egypt, Israel, Jordan, Lebanon, Libya, Morocco, Palestine, Syria, Tunisia and Turkey. First, it assesses the performance trends of the SEMCs’ agricultural sector, with a focus on production, consumption and trade patterns, incentives, trade protection policies and trade relations with the EU, productivity dynamics and their determinants.

Casual observation shows that that the financial systems in the southern and eastern Mediterranean are unable (or unwilling) to divert the financial resources that are available to them as funding opportunities to private enterprises. Using a sample of northern and southern Mediterranean countries for the years 1985 to 2009, this study empirically assesses the reasons underlying such conditions.

This policy paper spells out the policy recommendations that emerge from a series of detailed studies undertaken for MEDPRO Work Package 5 on “Economic development, trade and investment” and presents detailed recommendations for the SEMCs and the EU in the areas of macroeconomic management, trade, investment, private sector development and privatisation, and sectoral policies.

Marek Dabrowski and Luc De Wulf are Fellows at CASE (Center for Social and Economic Research) in Warsaw.

Lack of adequate infrastructure is a significant inhibitor to increased trade of the countries of the Mediterranean region. Bringing their transport infrastructure to standards comparable with countries of a similar per capita GDP will be costly but worthwhile.