Economic Implications of Unrest in Arab world by Tirumala Prasad SignUp
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Analysis Share This Page
Economic Implications of Unrest in Arab world
by Tirumala Prasad Bookmark and Share

The people of Egypt are somehow successful in getting freedom at last from the clutches of a dictator who ruled Egypt for about 30 years. The revolutions by some enlightened citizens have been spreading to other suffering Arab countries too. For instance there have been wide spread agitations and protests against the ruling dictators in Libya, Bahrain, Yemen, Syria,Algeria, etc. In Libya, the president has been ruling the country for the past 42 years, but people claim that there has been minimal optimal resource allocation and thus minimum welfare of the citizens!

The following are some of the severe economic consequences if the protests continue: 

  1. Rise in Oil Price
    The unrest in Libya for instance, has been responsible for the reduction in the production of crude oil leading to the shortage of supply of oil and thus enhancing the prices of oil. This will lead to increase in the cost of production and thus rise in the prices. Such a situation would also lead to reduction in the purchasing power of poor people and low rate of savings and finally the decrease in the investments, capital accumulation, economic growth, etc. 
     
  2. Public Finance and Opportunity Cost:
    The money which could have been spent on other developmental projects is being spent on controlling the protesting crowd and other security or defense measures by the respective governments in these countries. After restoring the peace, the new governments may impose new taxes burdening the ordinary citizen. Governments may even go for borrowing from external sources which would be an additional burden on government’s financial resources. 
       
  3. Reduction in the Availability of Quality of Goods and Services: 
    The productive or working population has been involving in agitations instead of participating in the production of goods and services for the past many days in these countries. Thus there might be a reduction in the supply of essential goods and services in the short run. Unrest affects all the three sectors of the economy. 
     
  4. Reduction in Exports and Imports:
    The present crisis would also severely affect the external sector, by reducing the balance of payments and foreign exchange resources. 
     
  5. Shifs in GDP:
    Since these economies have not been working productively for the past several days the growth rates would decline leading to the reduction in the national income and per capita incomes of the people. Reforms in the policies may reverse the trend in the long run.   
  6. Damage to Infrastructure:
    The respective governments need to spend huge amounts as both public and private properties have to be reconstructed due to the damage caused by the angry mob and also due to the agitations with the peace keeping forces. The opportunity cost of which is the social and economic development of these nations.  
     
  7. Additional Time Required to Instill Confidence:
    If the revolutions do not end on a positive note and persist for a long time, the remaining countries of the world hesitate to do trade and also to maintain normal relationships.  
     
  8. Psychological Effect on the Suffering Human Resources:
    Damage caused to the reputation of these countries may affect the human resources and thus affecting their productivity. 
     
  9. Globalization and Growth:
    The countries of the world have been competing with each other to increase foreign direct investments, foreign institutional investments, etc. Counties need to maintain certain constructive environment for free flow of foreign capital. 
     
  10. Reduction in Tourism Earnings:
    The tourist arrivals to the Arab world are not much even during the normal days when compared to the other major tourist destinations of the world. Such arrivals would further deteriorate due to the present crisis. 
  11. International intervention: The intervention by the U.S., and other allies is an unnecessary burden on these countries and waste of precious resources.
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18-Mar-2011
More by :  Tirumala Prasad
 
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