Microeconomics of growth in MENA: the role of households

Research on economic growth in the MENA region has attributed growth outcomes mainly to actions taken by governments, but have households contributed to growth? This paper examines the incentives and the constraints faced by households in MENA which may have helped or hindered their role in fostering growth.

The author maintains that rules set by institutions specific to the region influence household behavior. Particular attention is paid to two institutions, the strong presence of central governments and social norms regarding gender. The paper attempts to show how these affect the role of households in growth.

The paper concludes that:

• the role of the state in education and labour markets and the social norms regarding gender determine the environment in which MENA households operate
• the environment in which housholds operate affects the division of labour within the household, resulting in high fertility and low labour force participation of women
• the effect on growth in MENA of household savings has been compromised by lack of confidence in the financial markets, itself caused by past arbitrary actions by governments and a lack of the rule of law
• the impact of state interventions and social norms on household actions were much greater in the accumulation of human capital than physical capital
• the role of the public sector in MNEA in education and the labor market has created a system of incentives in which households strive hard to accumulate formal education but not enough in productive human capital

• individual country studies should examine the extent to which characteristics of the environment identified here--the state and social norms—apply in their specific cases
• micro studies of household behavior can be very useful in understanding the impact of the environment on the static and dynamic decisions of the households, they are indispensable in disentangling the effects of individual preferences and social norms as opposed to constraints in shaping behavior
• for dynamic decisions, the focus should be on the markets for physical and human capital
• with respect to physical capital accumulation, the efficiency with which credit institutions can channel household savings toward productive investments is the key
• with respect to human capital accumulation, which is produced directly within household as well as in schools