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Part 1 Economic Growth and Investment in the Arab WorldEconomic Growth
and Investment in
the Arab World
Xavier Sala-i-Martin and Elsa V. Artadi
Growth
The growth performance of the Arab world over the
last twenty years has been disappointing. Figure 1 shows
a measure of Arab world GDP per capita between
1960 and 2000.1 After increasing at rapid rates
between 1963 and 1980, GDP per capita stagnated
over the following two decades. In fact, GDP per
capita in the region as a whole was lower in the year
2000 than in 1980; the huge decline of the early
1980s was followed by a very moderate recovery,
which has not yet helped the region reach the
income levels of 1980. Of course, not all economies
within the Arab world behave in exactly the same
way. For example, whereas the pattern of GDP per
capita for oil-producing economies is similar to that
of the group as a whole (the level is slightly higher
for the oil countries than for the average country
in the region, but the pattern over time is virtually
identical), the non-oil producing countries grew
almost continuously between 1960 and 2000 (see
also Figure 1).2 The rate at which GDP per capita
increased, however, also seemed to slow after 1980.
The pattern of growth rates for the Arab world and
differences between oil- and non-oil-producing
countries are displayed in Figure 2. The fi rst thing
to notice is that the annual growth rate is highly
volatile. The volatility is more pronounced for the oil
countries, which shows that the growth rate depends,
at least in the short run, on oil prices.
The short-term volatility, however, masks some well-
defi ned medium- and long-term trends. For example,
if we add a linear trend line to Figure 2, we see that
it is negatively sloped, which suggests that the growth
rate has had a tendency to decline over time. The
negative trend of the growth rate over time applies
equally to the oil and non-oil producing countries.
Figure 3 separates the annual growth rates into
averages for fi ve well-defi