A CDGE, Great Decisions and IT Collaboration

One year after the Arab Spring, what is the impact of this event on the macroeconomics of Tunisia?

 – A look at industrial output data as a model for measuring economic growth.

Anders K. Møller, 2/17/2012

 Tunisia was the first country during the Arab Spring to experience huge protests against the incumbent government, under the 23-year long rule of President Zine El Abidine Ben Ali. The revolution began in December 2010 following the self-immolation of Mohamed Bouazizi on December 17^th in protest against the corruption of the local administration.  Demonstrations in solidarity with Bouazizi and against the corrupt regime of Ben Ali from years of poverty and political suppression ensued, culminating in the departure of Ben Ali on January 14^th. In this blog entry I will seek to establish a model for evaluating the economic effects of the Arab Spring in Tunisia (also known as the Jasmine Revolution of that country), and test it against a general economic indicator.

The National Bureau of Economic Research (NBER) in the United States measures the activity of the economy according to four factors, namely industrial production, employment levels, real income levels, and sales in both wholesale and retail. I will attempt to measure the economic pulse of Tunisia during and after the Jasmine Revolution by looking at industrial production levels within the economy, presuming that violent political upheaval will have a detrimental effect to the economy. I will then seek to confirm my results by comparing to the traditional economic indicator, namely Real GDP.

According to data obtained from the Tunisia National Institute of Statistics, the industrial monthly index (using year 2000 as base 100) shows a growth in annual industrial production from 1352.4 million to 1411.3 million dinars  (TND: Tunisian Dinar) from 2009 to 2010. However, at the height of revolution in January 2011 we see a sudden decrease in monthly output compared to the previous year, from TND 130.4 million to TND 116.1 million. This is strong evidence of a general halt in production among a large swathe of firms within the economy as a result of the violent demonstrations by the populace. Both January and February saw huge demonstrations until Prime Minister Ghannouchi resigned on 2/27/2011, and our presumption is further backed by the fall in February production from a year prior from TND 124.6 million to TND 111.1 million. Come March, we see not only a stabilizing political environment but also a return towards normal production levels. By April, monthly production had exceeded the level of the same month in 2009 indicating that the economy had returned to normal. Although average monthly industrial output for 2010 ended up lower than 2009 (pending statistics for the month of December), the total output was still higher in 2010 at TND 1539.6 million compared to TND 1411.3 million. A table summarizing the data is shown below:

As can be seen from our model developed above, there’s a close correlation between political instability and economic output. Our data have shown us a sharp decrease for the months of January and February in 2011, the period with the most violent demonstrations and worst political instability. Although the economy managed to pick up from March and onwards, the year 2011 could still have seen much higher industrial output. To confirm whether the economy as a whole was truly affected as indicated from the drop in production output, we will not take a look at Tunisia’s Real GDP for the Period.In 2010, the Real GDP growth rate in Tunisia was 3.7% according to the World Bank. The last quarter in the year saw a steady growth of 1.6%, but this number plunged in early 2011. In the first quarter from January through March, Tunisia’s GDP growth plummeted to -7.8%. Although the economy is seen to pick up in the next two quarters, the annual Real GDP growth rate is estimated to be only 2.4% for 2011. This is illustrated on the graph below, taken from tradingeconomics.com:Although accurate numbers for 2011 have not been published yet, the Real GDP growth confirms our findings based on industrial output: At the height of the Arab Spring in Tunisia, economic growth as a whole was severely hindered. The strong correlation between Real GDP and Industrial Output therefore confirms out modeling of the economy based on industry production.In spite of the quick recovery in the second quarter of 2011, Real GDP could have grown significantly more if the revolution had not taken place. In spite of this one, one could surmise that the Jasmine Revolution will have a positive effect on the economy in the long-run as the new government raises both political and economic freedom.