This dissertation consists of three chapters and a conclusion. Its main theme is to investigate the impacts of external and domestic factors on the economies of Middle Eastern and North African (MENA) countries, and to empirically assess the fiscal sustainability of past and current fiscal policies (particularly fiscal deficits) in these countries. The sample of the study includes 20 MENA economies during the period 1963-2002.; The first chapter provides an introduction and economic overview of MENA economies and the macroeconomic challenges they face individually and regionally. Various economic aspects and trends in these countries are reviewed including: the structure of their economies, real sector growth and productivity, prices and unemployment, fiscal and monetary sectors, and the external sector.; Chapter two studies the dynamics of macroeconomic variables, including fiscal deficits, and macroeconomic shocks, including external and internal shocks in these countries in the context of a panel vector autoregressive (PVAR) model which uses estimates derived from running individual country structural vector autoregression models. The steps for estimation of the PVAR model is based on the group mean estimator (GME) as proposed by Pesaran and Smith (1995). The results are pooled and compared across all countries as well as two country groups: oil-producing and non-oil producing countries. Each country's model includes a set of domestic (country-specific) variables including real GDP growth, fiscal balance, inflation and trade balance; and a set of external variables (common across countries) including real oil prices, world output, and world real interest rates. A general equilibrium version of the small open economy model is utilized to highlight the main long-run relationships between macroeconomic variables. Identification of the model uses long-run restrictions in the spirit of Blanchard and Quah (1988) and extending it to encompass external shocks as well as domestic shocks. The identification scheme uses three types of identification restrictions: (1) the small open economy assumptions; (2) the long-run economic restrictions stemming from the economic model (i.e., long-run neutrality of nominal and aggregate demand shocks); and (3) orthogonality of the structural innovations. The results (pooled variance decompositions and pooled impulse response functions) are then used to characterize, quantify and compare the impacts of various factors and shocks for an average MENA economy, average oil MENA economy and an average non-oil MENA economy.; Chapter three explores and investigates the fiscal sustainability problem in 20 MENA countries. The chapter reviews and presents the latest developments in empirical tests of fiscal sustainability and attempts to apply them to the countries in the sample. Different approaches are considered in the analysis. The first approach is based on the Primary Gap indicator, which gives the necessary fiscal adjustment needed to maintain a stable debt-to-GDP ratio. The second approach is motivated by the present value constraint (PVC) condition or better known as the 'no Ponzi Game' condition. It basically rests on studying and exploring the time-series properties of the fiscal data using unit root tests and cointegration analysis. The third and last approach is implemented to mimic the notion of 'permanent income' by simulating the present discounted value of oil wealth in oil-producing countries. This approach provides interesting insights onto the actual magnitudes of the fiscal problem in resources-endowed economies.
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