Macroeconomic Institutions: Lessons from World Experience for MENA Countries

What can be learned from the world experience about different macroeconomic institutions, to improve macroeconomic performance in countries that face high volatility and large unpredictable structural changes in international commodity prices, and in the MENA region in particular? In addressing this question, this paper starts by describing the recent evolution and current state of ten formal economic institutions in five key areas of macroeconomic management, for a large world sample and 6 regions. A review of the empirical literature (conducted separately for world and MENA samples) on the effects of the ten institutions on macroeconomic performance indicators (including growth, among several other variables) yields striking differences between institutions. A new Macroeconomic Institutions Frontier Index, which provides country-level measures of adoption of eight current best-practice institutions, is applied to quantify the distance of MENA countries from the international best practice in adopting frontier institutions. Then the paper focuses on the reverse causality, reviewing the international evidence on economic and institutional conditions that foster adoption of frontier macroeconomic institutions. Final policy lessons are drawn for strengthening macroeconomic policy making and institutional reform in MENA countries.