Three Essays in Macroeconomic Development
Open Access DepositedSelected Issues from the MENA Region
less-than-basic, basic, intermediate, and advanced, with inequality embedded in the model and unevenly impacts education effectiveness, unemployment exposure, and skill retention across the different education groups. The central finding is a \textit{duality mechanism}
shocks to inequality and unemployment generate asymmetric effects across the skill distribution, with less-educated workers experiencing impacts much larger than advanced workers. Education investment raises aggregate human capital, but gains accrue disproportionately to higher tiers. Limited domestic absorption and outward migration of skilled labor further weaken the link between education spending and productivity. Informality emerges endogenously as an adjustment margin that absorbs disruptions but contributes less to aggregate output. Calibrated to Egyptian macroeconomic and labor market data, the model demonstrates how inequality, informality, and skill leakage jointly constrain education-led growth. The results imply that policies targeting aggregate education spending without addressing labor market segmentation are unlikely to close productivity gaps. Although calibrated to Egypt, the mechanisms generalize to other middle-income settings where educational expansion coexists with persistent inequality and skilled emigration. Chapter 2 develops a DSGE model that treats political stability as an endogenous macroeconomic state variable. Using Egypt as a focal case, the framework embeds political conditions within a general equilibrium setting, allowing economic shocks to propagate through real, nominal, fiscal, and political channels. Political stability responds to food prices, unemployment, subsidies, and external aid, and in turn shapes fiscal behavior and external financing, departing from conventional models that treat political conditions as exogenous. Food price shocks emerge as the most politically destabilizing disturbance, reflecting their direct impact on real incomes and cost-of-living pressures. Threshold analysis shows that sufficiently large price increases can shift the economy across distinct stability regimes, indicating nonlinear political responses. Exchange-rate and unemployment shocks also weaken stability, though with smaller magnitudes. Subsidies serve as the primary buffer for immediate stabilization, while external aid supports adjustment over a longer horizon but cannot substitute for domestic price buffers. Political instability, once triggered, feeds back into output and employment, amplifying and prolonging adjustment. The mechanisms emphasized by the model such as food price sensitivity, labor market segmentation, and state-contingent fiscal and external buffers, are characteristic of many developing and middle-income economies. The chapter provides a tractable framework for analyzing when macroeconomic shocks become politically destabilizing and how policy buffers condition resilience in fragile macro-political environments. Chapter 3 develops a DSGE model to evaluate whether comprehensive institutional reform can alter the sources and transmission of macroeconomic fluctuations in a resource-dependent economy. The framework is calibrated to Saudi Arabia's Vision~2030, contrasting a \textit{pre-reform} regime reflecting a rentier structure in which output and employment are driven by oil revenues and public expenditure, and a \textit{post-reform} regime incorporating labor market liberalization, fiscal diversification through non-oil taxation, foreign investment opening, and large scale public investment. Both regimes share an identical model structure
The main motivation of this dissertation comes from a simple observation
only regime-specific parameters differ. Five structural shocks, spanning commodity prices, external capital flows, public investment, and labor market policy, are applied to both regimes to identify how policy activation reshapes macroeconomic transmission. The results indicate that comprehensive reform substantially reduces the dominance of oil price shocks over macroeconomic fluctuations, with domestic investment, productivity, and labor market channels absorbing much of the redistributed variance. However, private investment responds primarily to state-led capital shocks, remains largely insensitive to labor market reform shocks, and exhibits no regime-dependent amplification of foreign direct investment. The findings imply that institutional reform can diversify the sources of macroeconomic fluctuations while aggregate expansion remains state-mediated, suggesting that sustained diversification will require the emergence of autonomous private sector investment dynamics beyond public capital activation.
inmany emerging and developing economies, macroeconomic outcomes are influenced not only by market forces but also by institutional structure and policy design. Adjustment does not occur in frictionless environments. It is mediated by how human capital is accumulated, how labor markets are organized, how fiscal capacity is constrained, and how political and regulatory institutions respond to shocks. These features dominate policy debates, yet they are often treated as peripheral frictions in quantitative macroeconomic models. The dissertation addresses the gap between the structural realities that policymakers confront and the mechanisms typically embedded in general equilibrium frameworks. To bridge this gap, each chapter develops a dynamic stochastic general equilibrium (DSGE) model that combines structural foundations with empirically disciplined policy rules, allowing the economy’s internal structure to shape both the propagation of shocks and the effectiveness of policy responses. The Middle East and North Africa (MENA) region provides a particularly informative setting because it combines economies facing different pressures and challenges ranging from inequality, labor market dualism, macro-political fragility, and the ambitions of large-scale institutional reform. This makes the region a natural environment to examine how structure and policy interact to determine macroeconomic outcomes. Why does educational expansion often fail to generate productivity gains in middle-income economies? Chapter 1 develops a DSGE model to examine how income inequality shapes macroeconomic outcomes through heterogeneous human capital accumulation and labor market segmentation. The model disaggregates the labor force into four education tiers
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