Testing the External Shock Narrative of the Conflict on Transition Towards Knowledge Economy in Syria

The external shocks narrative in the existing literature suggests that the underdevelopment of a knowledge-based economy in low-income countries is due to external shocks of an economic or political nature. This study aims to analyze the real causes that hinder the Syrian economy from transitioning toward a knowledge-based economy. We apply the Documentary Research Method (DSM) to analyze the existing literature of the external shock theory as well as studies that investigated the transition process toward a knowledge-based economy. We also apply the Structural Vector Autoregression (SVAR) to measure the impact of internal and external shocks on some innovation and knowledge creation-related variables. Our results indicate that, in the short and long run, external shocks do not provide a comprehensive explanation of the failure to build a knowledge-based economy in Syria. On the other hand, internal shocks, whether the shock of liberal policies or the internal conflict, provide better insights. The results also show that internal shocks in general and the shock of liberal policies in particular are largely responsible for Syria's failure in transitioning to a knowledge-based economy, and for the outbreak and development of the conflict. A set of economic policies were proposed for the reconstruction of Syria based on a non-classical approach that orients the reconstruction process toward building a knowledge-based economy and raising the pace of convergence with other countries in the region, whether in terms of digitization or changing the sectoral structure of the economy.