The political instability, investment profile and the macroeconomic performance of the Middle East & North Africa (MENA) region

In this paper we focus on the relationship between political stability, investment profile and macroeconomic performance in the Middle-East & North Africa (MENA) region including Turkey. In the theoretical section we evaluate various models, the effect of political stability and investment profile on inflation, economic growth rate and surplus/deficits on the current account balance of payments. In the empirical section we analyze the evidence on the predictions generated by theoretical models. Furthermore, we generate Malmquist Productivity Index (MPI) for the MENA region countries where the data available include Turkey. The empirical section comprises the time span between 1987 and 2003. The reason for the application of MPI in such a study is that when there are many components, factor analysis - a technique that aggregates components with unknown weights - is a convenient and superior alternative. For the period of 1987-2003, we explore that the MENA region countries macroeconomic performances declined and Malmquist index values are highly volatile after the Gulf War. We find out that there has been an inverse relationship between macroeconomic performance and political risk.