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The political economy of economic growth policies: the case of Yemen Republic
Weak-functioning institutions are the main reason behind low growth rates in Yemen
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Overview
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Read This Document
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Papers by Same Organization
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Yemen Republic has experienced low economic growth rates for much of the last eight decades. Recent economic history (1917-2000) has shown that the national growth rates have fluctuated between 2% and 8%. This paper explains why economic growth rates in Yemen were sliding and its policies were ineffective during the period under study. The country had experienced many different political systems during the period under consideration. However, all of them could be characterized by weak representation, coordination and commitment, resulting in malfunctioning institutions. The paper argues that this might explain why economic growth policies were absent and almost ineffective. Prior to 1995, growth polices were not a priority for ruling governments. However, the 1995 economic crisis forced the government to initiate a comprehensive economic program to achieve higher economic growth rates. This program adopted two strategies: establishing economic stability, and restructuring the economy. Stabilisation policies consisted of a mix of fiscal, monetary and trade policies. Their main goal was to curb the inflation rate and stabilize the exchange rate through reducing the budget deficit and improving the status of international reserves. Restructuring policies consisted of:
- efficiency policies such as: privatization, restructuring the financial sector, improving the investment environment as well as opening up the economy
- capacity building policies including: reforming civil service, improving infrastructure, human development and social services
Whereas stabilisation policies were a success, restructuring policies failed to meet their goals. The inflation rate had been reduced to less than 10% within two years and the value of the national currency had shown encouraging signs of stability. It was expected that as soon as stabilization was achieved, economic growth would pick up. This process of economic growth did not pick up, and the paper argues that this failure can be attributed to the malfunctioning of national institutions. The paper indicates that the Yemeni political system is a mixture between democratic (nominal multiparty system) and dictatorial (ruling entity determines the roles of all parties in the political process) systems. Some of the paper’s policy recommendations include:
- well-functioning institutions must be established to support sound economic policies, guarantying a degree of representation, commitment and coordination
- government institutions should initiate and implement a comprehensive and sound economic growth strategy
- a more democratic political system should be practiced which will allow for the building of modern government institutions
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| GDN Activity: | Global Research Projects: Explaining Growth | | GDN Theme: | Explaining Growth | | GDN Year: | 2003 |
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| Studying the impact of natural resources on institutional development |
| By , M., 2011 |
| Produced by: Global Development Network (GDN) |
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