The Arab League: Export Earnings and Economic Development

Abstract

The countries of the Arab League paint a diverse picture of economic (and social) performance and export-earnings performance. While Arab countries have formed numerous alliances for one reason or another, the League of Arab States, more popularly known as the Arab League, is the dominant one. One can, however, see a social, political, economic development divide among them. Focusing on the export performance of these countries during the period from 1988 through 2012, we examine stability of export earnings as well as exports’ risk-return profile. The single index model from the modern portfolio theory is used for empirical examination. The results indicate that these countries exhibit a corresponding performance divide for export-earnings. The oil and natural gas exporters show a much higher sensitivity than non-oil exporters. Exporters with a higher proportion of manufactured products show a much lower sensitivity. Examination of risk-return tradeoff reveals a more complicated picture: Qatar, UAE and Bahrain show the highest Sharpe ratio which is a measure of performance based on total fluctuations whereas Lebanon, Jordan and Tunisia show the highest Treynor ratio which is a measure of performance based on market-fluctuations. The study concludes that different socioeconomic development policies are needed for developed and developing countries of the Arab League. Several structural challenges facing these countries are pointed out and discussed to improve economic and export performances. These challenges can be overcome only with sustained resolute action emanating from the highest level of political control.