Taking into account the recent major economic developments in the OIC member countries and the inter-linkages of these developments with those in both developing and developed countries as well as the world economy as a whole, this issue of the Journal of Economic Cooperation and Development – June 2017 analyses the trends in the major economic indicators of the OIC countries and the recent projections related to fiscal policy uncertainty and economic growth as well as the macroeconomic determinants of outward foreign direct investment. It highlights factors influencing youth’s decision in entering formal and informal labour markets and investigates the benefits of a currency union to trade. This Issue also analyses the optimal choice of exchange rate regime and investigates whether there is a link between profit share rate of participation banks and interest rate. These economic indicators and issues have marked a challenge confronting the OIC member countries in the Middle East and Asia in their efforts to further their economic development and progress.
The first article examines the relationship between fiscal policy uncertainty and economic growth along with coherent input from financial sector development in Pakistan for the period of 1970-2011. The findings suggest that fiscal policy instability because of government expenditures; revenues generation and budget uncertainty have been abating the economic growth significantly in Pakistan. Particularly, the fiscal policy failure in generating revenues due to tax evasion and narrow tax base and its dependency on debt servicing to meet its expenditures induces the vulnerable budget.
The second article examines the home country macroeconomic determinants of Kuwait’s outward foreign direct investment (OFDI) using country level time series data for Kuwait over the period (1976-2011). A comparison is also been conducted between the trends of the factors determining OFDI in Kuwait, Saudi Arabia, and Norway as counterparts of developing and developed oil producing countries. The study finds that the main macroeconomic determinants of Kuwait’s OFDI are interest rate, inward foreign direct investment (IFDI), and public expenditure. The comparison shows that the trend of Kuwait’s determinants of OFDI is partially consistent with the trend in Norway. This forms a critical phenomenon affecting Kuwait’s overall economic performance. If the country’s FDI outflows are controlling saving rate and hence domestic investment, the objective of FDI which is facilitating the country’s investment and contributing to its economic growth is not achieved.
The third article attempts to uncover the factors influencing youth’s choices into labour market in Egypt. Using the ILO’s School-to-work transition survey (Egypt, 2014) as the main source of data, this paper is trying to formulate a clear idea about the socio-economic and demographic background characteristics of both formal and informal sector workers. Informal sector workers are likely to be more male-dominant, younger, mostly reside in rural areas, poorly educated, have no-formal education or training experiences, have more children, comes from a financially poor families, and educationally less advantages parents. Education, place of residence, age at first marriage, parents’ level of education, and principal work status made the greatest contribution in differentiating between the two groups and can be considered as the most predictor variables of the informal workers.
The fourth article assesses the benefits of a currency union by using the West African Monetary Zone (WAMZ) and the traditional gravity model approach. These model approaches are useful in checking the impact of a single currency on trade enhancement and the impact of the instability index on economic growth. The empirical findings supported the hypothesis that currency unions do have a significant positive impact on trade flows, which therefore leads to trade enhancement. Hence, Economic Community of West African States (ECOWAS), African Union (AU) and regional bodies need to have peace and stability as a top priority in their agenda. In doing so, peace will continue to prevail in the region which will create the conductive environment in enhancing trade among member countries.
The fifth article aims to evaluate the effect of using different pegging exchange rate regimes on the stability of the JD exchange rate adopted by Jordan in various foreign exchange rate systems. The study found that pegging to the IMF Special Drawing Rights was the best choice. This is so because this alternative would lead to more stability of the JD and local prices compared to other alternatives. This strategy achieves greater stability to the exchange rate of the JD and the domestic prices level, while it cuts down the cost of imports and the external debt.
The sixth and last article examines variables that affect profit share rate of participation banks and deposit interest rate of conventional banks over the period between January 2006 and May 2015 in Turkey. The profitability of conventional banks, government security, and foreign exchange rate are significantly effective on deposit interest rate settled by conventional banks. The interest rate is a benchmark for participation banks to determine the profit share rate. Therefore, this situation has increased the demand and orientation for Islamic finance as a substitute for the modern financial system. Both this case and the distance that is taken by Muslim countries in recent years have increased the share of Islamic banking/finance in the world.
Amb. Musa KULAKLIKAYA
Articles of the Journal of Economic Cooperation and Development, Vol.38 No.2 (2017)