State business relations and the dynamics of job flows in Egypt and Turkey

Abstract

Long-standing challenges concerning unemployment and the role of government have been the dominant underlying themes in the countries of the Middle East and North Africa (MENA) region. Effective State-Business Relations (SBRs) comprise a set of highly responsive and public interactions between the state and the business sector. The aim of this study is to explore the dynamics of net job creation rates in Egypt and Turkey, and the role of the SBRs, including various firm characteristics. The analysis relies on firm-level data derived from the World Bank Enterprise Surveys over the period 2008–2013. We implement the weighted ordinary least squares (OLS). Furthermore, we apply an Instrumental Variables (IV) Approach and the Two-Stage Least Squares (2SLS) method for robustness check, to deal with the potential endogeneity issues coming from the self-reported statements and the possible degree of reverse causality between SBRs and the main outcomes of interest. Our findings suggest four major obstacles to SBRs, with constraints of access to finance and credit and political instability being the common major obstacles in the two countries explored. Corruption and lack of proper infrastructure in electricity in Egypt are found to be the next two main obstacles in SBRs, while tax rates and competition from the informal sector are identified as the other two main obstacles in Turkey. The results show that obstacles in SBRs contribute negatively to the net job creation. According to these findings, policy implications include the need to make SBRs operate more efficiently, investments on proper infrastructure and policies that minimize corruption and political instability.

The nexus between business–investment climate and firm performance in the Middle East and North Africa (MENA) region

“…These findings confirm the results of our study where we employ an index of business and investment climate that includes various obstacles, such as access to finance, political instability, corruption and electricity infrastructure among others. About the firm characteristics, our findings are consistent with the studies by Ozdamar et al (2020) and Abdo and Fakih (2022) that found female ownership, exporting activities, international certification of quality assurance and if are part of another establishment, are positively related to firm performance in MENA region countries and Turkey. Similarly, our results confirm the findings by Sen and Velde (2009), who found that institutional quality measured by the rule of law, executive constraints, the degree of corruption and the quality of the bureaucracy are significant determinants of economic growth in 19 sub-Saharan African countries.…”

“…Our results show that the obstacles in business and investment climate can negatively affect the firm performance, which is also found in the previous studies. In particular, Hosny (2017) Arayssi et al (2019) and Ozdamar et al (2020) show that political stability is a significant determinant of firm performance, while Karahasan and Bilgel (2020) found obstacles related to access to finance reduce firm performance by 2.3-4.4% in eight MENA region countries and Turkey. These findings confirm the results of our study where we employ an index of business and investment climate that includes various obstacles, such as access to finance, political instability, corruption and electricity infrastructure among others.…”

“…The business and investment climate nexus climate obstacles and resource misallocation, as we do in Egypt and Turkey. There are few recent studies exploring the role of business and investment climate in the MENA region countries (EBRD et al, 2016;Brown and Earle, 2017;Hosny, 2017;Karahasan and Bilgel, 2020;Ozdamar et al, 2020). For instance, Karahasan and Bilgel (2020) using a causal mediation analysis explored the role of access to finance in eight MENA region countries and Turkey over the period 2013-2015, and they found obstacles related to access to finance reduce firm performance by about 2.3-4.4%.…”

“…Various studies have explored the role of governments and financial institutions in firm performance Taylor, 2001a, b, 2002;Hosny, 2017;Arayssi et al, 2019;Ozdamar et al, 2020;Abdo and Fakih, 2022). For instance, Abdo and Fakih (2022) argue that the legal form plays a significant role in the firm performance, and they demonstrate that companies with open and closed shareholding and those with a limited partnership perform better than the sole proprietorship firms in terms of annual sales and annual productivity growth rates.…”

“…The author measured the firm performance as the employment growth and firms' sales and found a negative effect of the political instability in firm performance. Similarly, Ozdamar et al (2020) explored the impact of several obstacles in business and investment climate on a firm's performance, in Egypt and Turkey, measured by job creation and destruction. The findings show that access to finance and political instability are two major obstacles in the business and investment climate, while other important obstacles found were quality of the electricity supply and corruption in Egypt, and completion from the informal sector and high tax rates were the other two major obstacles in the business climate of Turkey.…”