By promoting efficiency in allocating investments, mature financial markets contribute to productivity in five ways. They identify productive projects and efficient firms, improve the management of risk, promote corporate governance, mobilize savings and minimize the adverse effects of financial shocks.
Over the past quarter of a century, annual real per capita growth in the Middle East and north Africa (MENA) has averaged only 0.5%, in contrast to an average of nearly 2% in the developing world as a whole. Research indicates that the main reasons for such poor growth levels are large governments, weak institutions, underdeveloped financial sectors, and inadequate and inefficient investment.
MENA growth rates can be improved by greater private sector credit and by reformed capital markets, as well as through institutional and political reform. The volume and efficiency of investment can be enhanced by the development of financial markets, which in turn will also...
