Demographics in MENA Countries: A Major Driver for Economic Growth

Abstract

MENA region is undergoing rapid demographic transition, where 50% of the population is under the age 25 and high youth unemployment rates are argued to be one of the main sources of political instability. Fighting youth exclusion from work is one of the main challenges in the region. In this paper we evaluate the economic impact of the demographic transition for selected countries which experience different speeds of transition, namely: Iran, Morocco and Egypt. The impact of demographic shift on the evolution of human capital stock and physical capital stock, has been highlighted by the literature. Since financial markets play a crucial role to allocate capital and channel the funds to the productive sector, it is hence fundamental to take into account the role of the financial markets in the growth process associated with demographic change. We have developed a general equilibrium overlapping generations model with a cost for capital mobilisation as a proxy for financial markets' efficiency. We have found that the demographic shift will be an important driver for growth in the upcoming decades. Furthermore, our results show that a more efficient financial sector leads to better economic performance. Specifically, youth are the primary beneficiaries: an increase in the financial sector efficiency can reduce up to 8 percentage points of the youngest age group unemployment.

The Changing Demographic Profile of Middle Eastern Countries

“…According to Forouheshfar et al (2020), the demographic transition in the MENA region started relatively late, however, it is happening considerably faster and could be regarded as an opportunity. Governments can play an active role in helping those potential benefits take place and preparing the youth to be absorbed in the labour market by investing in labour-intensive jobs and developing training programs.…”

Putting People Back into the Picture: Some Studies in Demographic Economics

“…Forouheshfar et al (2020) develop a dynamic general equilibrium framework of economic growth with overlapping generations, capital mobilization costs, and search-and-matching frictions on the labor market. Applying their model to the Middle East and North African countries Egypt, Iran, and Morocco, Forouheshfar et al (2020) show that (1) a more efficient financial sector in terms of a 50% reduction in investment costs leads to higher output and a reduction of unemployment by three percentage points, and (2) that the demographic changes that these countries face will reduce unemployment by 10-16 percentage points. The effects of these developments are more pronounced for the youth such that their unemployment rates decrease by more than unemployment amongst other age groups.…”