Caroline Freund - Böcker

Using new firm-level export data collected in eight MENA countries - Egypt, Iran, Jordan, Kuwait, Lebanon, Morocco, Tunisia and Yemen - this study provides a finer and deeper diagnostic for the regions lack of export growth and diversification. Several main findings emerge from the analysis. First, MENA under trades but the region-wide aggregates hide considerable heterogeneity. Second, firm-level evidence confirms exchange-rate policy as a priority area for policy action. Third, MENA has failed to nurture a group of exporter superstars (i.e. the top 1 per cent exporters) capable of lifting its export performance. Fourth, export promotion in MENA countries has some effects on small exporters but aggregate effects are limited. Finally, MENA's prevalent cronyism and corruption under pre-Arab Spring regimes confirms that business-government ties led to distortionary allocation of favors and rent dissipation by beneficiary firms, with little evidence that those firms developed into national champions or helped lift the region's export performance. This in itself should call for caution when advocating any form of government intervention. More broadly, those results suggest that increasing significantly export of MENA countries would require a better environment for existing large firms to grow and for expanding the number of large firms. Interventions that affect foreign demand or variable costs are likely to achieve more than interventions that affect the entry costs that new exporters face.