Papers by Mahmoud El-Gamal
Social Science Research Network, 2020
This paper investigates the effects of low oil prices and heightened geopolitical risks on econom... more This paper investigates the effects of low oil prices and heightened geopolitical risks on economic growth and investment in the Middle East and North African (MENA) countries. We employ a Global Vector Autoregression (GVAR) model with 53 countries, including 15 MENA countries, over the period 1979Q2-2017Q2. We impose sign restrictions on the impulse response functions (IRFs) to identify two types of negative oil price shocks, resulting from demand or supply changes, as well as geopolitical risks. Moreover, we estimate a set of nonlinear local projection IRFs, which allow for a regime change, high vs. low, in oil price and geopolitical risk levels. We find that negative shocks to oil prices and positive shocks to geopolitical risk have adverse effects on GDP and investments in MENA countries. Moreover, we find that a simultaneous incidence of (i) positive shock to country-level investment together, (ii) a negative shock to oil price and (iii) positive shock to geopolitical risk has statistically insignificant effects on country-specific economic growth. Finally, we find that the impact of investment on GDP in MENA countries is muted when oil prices are low and/or geopolitical risk level is high. These findings cast doubts on the prospects of mega-project economic transformation plans as envisioned in 2030 visions for several MENA countries.
Energy Economics, Mar 1, 2020
This paper aims simultaneously to study the global dynamic relationship of oil prices, financial ... more This paper aims simultaneously to study the global dynamic relationship of oil prices, financial liquidity, and geopolitical risk, on the one hand, and the economic performance of oil-exports-dependent economies on the other. Global and country-specific dynamics are studied together in a Global Vector Autoregression (GVAR) model that allows different lag structures for different variables in different countries. Global impulse response functions from the estimated model suggest that new waves of high oil prices are unlikely, despite the likely continuation of high global financial liquidity and heightened geopolitical risk, which had driven earlier episodes of very high oil prices. With oil remaining at modest to low prices by recent historical standards, we study the prospects for economic growth in oil-export-dependent economies through dramatic increases in domestic investment, as planned under Visions 2030 of some Arab countries, and conclude that, unfortunately, success is unlikely.
RePEc: Research Papers in Economics, Jul 1, 1992
This paper investigates learning in games with one-sided incomplete information using laboratory ... more This paper investigates learning in games with one-sided incomplete information using laboratory data from a game which we call the game of Vertigo. The predicted Bayes N ash equilibrium behavior of the agents in this type of game generates overly strong restrictions on the data, including the zero likelihood problem: certain actions should never be observed. To circumvent statistical problems, and to allow for deviations from perfectly rational behavior, we introduce the possibility of players making errors when choosing their actions. We compare two competing models depending on whether play ers take the errors in actions into consideration when formulating their strategies. We also investigate possible deviations from Bayes's rule, producing too fast or too slow an updating rule. In total, we get six models of sophisticated and unsophisticated strategy formation on the first dimension, and fast, slow, or no updating on the second. We apply a fully Bayesian structural econometric approach to compare the statistical performance of these six models, and to obtain posterior estimates of several nuisance parameters governing the errors in actions. The two models where players are unsophisticated and either use no updating at all, or use dampened updating, have a much higher likelihood than any of the others.
Economic Theory, Nov 1, 1994
Experimental games typically involve subjects playing the same game a number of times. In the abs... more Experimental games typically involve subjects playing the same game a number of times. In the absence of perfect rationality by all players, the subjects may use the behavior of their opponents in early rounds to learn about the extent of irrationality in the population they face. This makes the problem of finding the Bayes-Nash equilibrium of the experimental game much more complicated than finding the game-theoretic solution to the ideal game without irrationality. We propose and implement a computationally intensive algorithm for finding the equilibria of complicated games with irrationality via the minimization of an appropriate multi-variate function. We propose two hypotheses about how agents learn when playing experimental games. The first posits that they tend to learn about each opponent as they play it repeatedly, but do not learn about the population parameters through their observations of random opponents (myopic learning). The second posits that both types of learning take place (sequential learning). We introduce a computationally intensive sequential procedure to decide on the informational value of conducting additional experiments. With the help of that procedure, we decided after 12 experiments that our original model of irrationality was unsatisfactory for the purpose of discriminating between our two hypotheses. We changed our models, allowing for two different types of irrationality, reanalyzed the old data, and conducted 7 more experiments. The new model successfully discriminated between our two hypotheses about learning. After only 7 more experiments, our approximately optimal stopping rule led us to stop sampling and accept the model where both types of learning occur. * We acknowledge the financial support from NSF grant ~SES9011828 to the California Institute of Technology. We also acknowledge the able research assistance of Mark Fey, Lynell Jackson and Jeffrey Prisbrey in setting up the experiments, recruiting subjects and running the experiments. We acknowledge the help of the Jet Propulsion Laboratory and its staff members for giving us access to their Cray XMP/18, and subsequently their Cray YMP2E/ll6.
Choice Reviews Online, Jun 1, 2010
The Global Curse of Black Gold Oil, Dollars, Debt, and Crises studies the causes of the current o... more The Global Curse of Black Gold Oil, Dollars, Debt, and Crises studies the causes of the current oil and global financial crisis and shows how America's and the world's growing dependence on oil has created a repeating pattern of banking, currency, and energy-price crises. Unlike other books on the current financial crisis, which have focused on U.S. indebtedness and American trade and economic policy, Oil, Dollars, Debt, and Crises shows the reader a more complex picture in which transfers of wealth to and from the Middle East result in a perfect storm of global asset and financial market bubbles, increased unrest, terrorism and geopolitical conflicts, and eventually rising costs for energy. Only by addressing long-term energy policy challenges in the West, economic development challenges in the Middle East, and the investment horizons of financial market players can policy makers ameliorate the forces that have been causing repeating global economic crises.
Journal of Applied Econometrics, 2005
Recent studies have stressed the importance of privatization and openness to foreign competition ... more Recent studies have stressed the importance of privatization and openness to foreign competition for bank efficiency and economic growth. We study bank efficiency in Turkey, an emerging economy with great heterogeneity in bank types and ownership structures. Earlier studies of Turkish banking had three limitations: (i) excessive reliance on cost-function frontier analyses, wherein volume of loans is a measure of banking output; (ii) pooling all banks or imposing ad hoc heterogeneity assumptions; and (iii) lack of a comprehensive panel data set for proper analysis of productivity and heterogeneity. We use an estimation-classification procedure to find likelihood-driven classification of bank technologies in an 11-year panel. In addition, we augment traditional cost-frontier analysis with a labour-efficiency analysis. We conclude that state banks are not particularly inefficient overall, but that they do utilize labour inefficiently. This partially supports recent calls for privatization. We also conclude that special finance houses (or Islamic banks) utilize the same technology as conventional domestic banks, and do so relatively efficiently. This suggests that they do not cause harm to the financial system. Finally, we conclude that foreign banks utilize a different technology from domestic ones. This suggests that one should not overstate their value to the financial sector. Copyright
RePEc: Research Papers in Economics, Mar 1, 1993
We study a dynamic version of the Harris-Todaro migration model where a finite pop ulation of inf... more We study a dynamic version of the Harris-Todaro migration model where a finite pop ulation of infinitely lived Bayesian agents choose consumption and migration decision rules as a function of their histories. The agents do not know the production functions in the two sectors and learn about them through wage draws that they receive from the stochastic production functions. The government knows the true production functions but is uninformed about the agents' beliefs, and the actual wage draws they observe. The government maximizes its welfare function-using wage subsidies in the two sectors, and a migration tax. We solve the agents' dynamic programming problem, and then use the solution to solve the government's dynamic programming problem. We study the effects of government policies on the population distribution, and illustrate the model by numerically solv ing a particular parametric example.
RePEc: Research Papers in Economics, Aug 1, 1989
RePEc: Research Papers in Economics, Jun 1, 2013
The global "great recession" was precipitated in part by record high prices of oil and other comm... more The global "great recession" was precipitated in part by record high prices of oil and other commodities. Previous severe recessions have typically resulted in significantly lower energy prices, which in turn spurred growth and fueled a healthy recovery. In part due to expansionary monetary policies worldwide, oil prices have remained relatively high, making it difficult for the global economy to stage a strong recovery. The result is a short-to-medium term forecast of weak to modest growth, which-combined with continuously falling energyintensity of GDP-means that oil demand will remain stagnant or at best grow modestly. Under these circumstances, surging supply from U.S. shale and similar technologically-driven unconventional oil sources is likely to create excess supply and put strong downward pressure on oil prices. Voluntary reduction in oil production to prevent falling prices is highly unlikely, because swing producer Saudi Arabia and other GCC countries need revenues at the level of current volumes and prices in order to meet core budgetary requirements and prevent regime-change risk in the aftermath of "Arab Spring" revolts. Our wavelet analysis of all countries that have ever produced more than one million barrels of oil per day shows that regime change by itself would not result in significant reduction in oil production-although it may result in lower investment and therefore prevention of further increase in production capacity. However, war that destroys physical installations for the production and/or transport of oil can significantly disrupt oil supplies. In sum, if the outright war scenario is excluded, we expect prices to fall precipitously in the medium term (3-5 years). However, the continued threat of currently-contained civil wars into larger confrontations can maintain the current prices, especially if unprecedented monetary easing continues.
RePEc: Research Papers in Economics, May 1, 1990
In "Bayesian Economists ... Bayesian Agents I" (BBI), we general ized the results on Bayesian lea... more In "Bayesian Economists ... Bayesian Agents I" (BBI), we general ized the results on Bayesian learning based on the martingale conver gence theorem from the repeated to the sequential framework. In BBI, we showed that the variability introduced by the sequential framework is sufficient under very mild identifiability conditions to circumvent the incomplete learning results that characterize the literature. In this paper, we demonstrate that result in the neo-classical single sec tor growth model under even weaker identifiability conditions. We study the evolution of agent-beliefs in that model and show that, un der reasonable conditions, the dependence of the current capital stock on the previous capital stock induces enough variability for our com plete learning results to become relevant. Not only does complete learning take place from the subjective point of view of the agents' priors, but it also takes place from the point of view of an objective observer (modeling economist) who knows the true structure.
Scottish Journal of Political Economy, May 4, 2021
A sharp decline in oil prices in Spring 2014 may have heralded the dawn of a new era of relativel... more A sharp decline in oil prices in Spring 2014 may have heralded the dawn of a new era of relatively low oil pricesoccasional short-lived rallies notwithstanding. A structural shift has occurred in oil markets-due to alternative sources of supply, declining energy-intensity of output and muted demand due to global economic deceleration
RePEc: Research Papers in Economics, Aug 11, 2004
The recent literature on "convergence" of crosscountry per capita incomes has been dominated by t... more The recent literature on "convergence" of crosscountry per capita incomes has been dominated by two competing hypotheses: "global convergence" and "club-convergence". This debate has recently relied on the study of limiting distributions of estimated income distribution dynamics. Utilizing new measures of "stochastic stability", we establish two stylized facts that question the fruitfulness of the literature's focus on asymptotic income distributions. The first stylized fact is non-stationarity of transition dynamics, in the sense of changing transition kernels, which renders all "convergence" hypotheses that make long-term predictions on income distribution, based on relatively short time series, less meaningful. The second stylized fact is the periodic emergence, disappearance, and reemergence of a "stochastically stable" middle-income group. We show that the probability of escaping a low-income poverty-trap depends on the existence of such a stable middle income group. While this does not answer the perennial questions about long-term effects of globalization on the crosscountry income distribution, it does shed some light on the types of environments that are conducive to narrowing/widening the gap between rich and poor countries.
Social Science Research Network, 1996
This is a Working Paper and the author(s) would welcome any comments on the present text. Citatio... more This is a Working Paper and the author(s) would welcome any comments on the present text. Citations should refer to a Working Paper of the International Monetary Fund, mentioning the author(s), and the date of issuance. The views expressed are those of the author(s) and do not necessarily represent those of the Fund.
RePEc: Research Papers in Economics, Oct 1, 1996
We study a panel structure with n subjects/entities being observed over T periods. We consider a ... more We study a panel structure with n subjects/entities being observed over T periods. We consider a class of models for each subject's data generating process, and allow for unknown heterogeneity. In other words, we do not know how many types we have, what the types are, and which subjects belong to each type. We propose a large T approxima tion to the posterior mode on the unknowns through the Estimation/Classification (EC) algorithm of El-Gamal and Grether (1995) which is linear in n, T, and the unknown number of types. If our class of models (likelihood functions) allows for a consistent asymptotically normal estimator under the assumption of homogeneity (number of types = 1), then the estimators obtained by our EC algorithm inherit those asymptotic prop erties as T t oo and then as n t oo (with a block-diagonal covariance matrix facilitating hypothesis-testing). We then propose a large T approximation to the EM algorithm to obtain posteriors on the subject classifications and diagnostics for the goodness of the large T approximation in the• EC stage. If the large T approximation does not seem to be appropriate, then we suggest the use of the more computationally costly EM algorithm, or the-even more costly-full Bayesian updating. We illustrate the procedure with two applications to experimental data on probability assessments within a class of Pro bit and a class of Tobit models.
RePEc: Research Papers in Economics, Jul 23, 1993
Cambridge University Press eBooks, Jul 29, 1999
Islamic Economic Studies, 1998
Many economists have studied the macroeconomic properties of interest-free banking in the framewo... more Many economists have studied the macroeconomic properties of interest-free banking in the framework of an isolated and ideal Islamic economy. In this age of integrated global financial markets, it is important to consider an alternative model where interest-based and interest-free banking co-exist. I present an evolutionary game-theoretic model in which strictly profit loss sharing (PLS), regular interest-based banks, and banks with Islamic windows interact. In this model, an ideal PLS regime would be the most prosperous, even from a purely financial standpoint. However, the PLS institutions are in jeopardy if they have to compete with conventional banks. It is shown in this model that in the face of competition with interest-based institutions, a critical initial mass of the hybrid type is necessary not only for the survival but also efficiency of the PLS in a heterogeneous environment.
Oil, Dollars, Debt, and Crises studies the causes of the current oil and global financial crisis ... more Oil, Dollars, Debt, and Crises studies the causes of the current oil and global financial crisis and shows how America's and the world's growing dependence on oil has created a repeating pattern of banking, currency, and energy-price crises. Unlike other books on the current financial crisis, which have focused on US indebtedness and American trade and economic policy, Oil, Dollars, Debt, and Crises shows the reader a more complex picture in which transfers of wealth to and from the Middle East result in a perfect storm of global asset and financial market bubbles, increased unrest, terrorism and geopolitical conflicts, and eventually rising costs for energy. Only by addressing long-term energy policy challenges in the West, economic development challenges in the Middle East, and the investment horizons of financial market players can policy makers ameliorate the forces that have been causing repeating global economic crises.
Social Science Research Network, 2018
The literature on economic determinants of democratization has identified most importantly the ef... more The literature on economic determinants of democratization has identified most importantly the effects of economic development and income distribution. In this regard, Egypt had exhibited higher average incomes and declining inequality between 1999 and 2012. However, by 2015, the level of income inequality had reverted near its level in 2008. Although income distribution data are not available for later years, trends in the composition of economic activity suggest that income inequality has likely continued to increase, disempowering the middle class further and contributing to de-democratization. A main puzzle during the build-up to the Arab Spring revolts of 2010-11 was the fact that income inequality in Tunisia and Egypt was relatively low in comparison to countries at similar stages of economic development. Especially for Egypt, this analysis had ignored the vast between-country and within-oil-exporting-country income inequalities, which, according to WID.world scholars' calculations, had rendered the Middle East the most unequal region in the world. Post-2011 trends have simultaneously integrated Egypt more closely with Gulf economies and transformed the Egyptian economy more closely to follow the investment patterns of the latter. Thus, the short-lived economic trends that fueled demands for democratization in Egypt have been reversed, underpinning the regression of her political system to resemble more closely those of her Gulf benefactors. Although large investments in infrastructure may potentially lead to enhanced productivity and economic re-empowerment of the middle class, past experiences of Gulf economies to which the Egyptian economy is converging suggest otherwise.
Social Science Research Network, 2017
This paper aims simultaneously to study the global dynamic relationship of oil prices, financial ... more This paper aims simultaneously to study the global dynamic relationship of oil prices, financial liquidity, and geopolitical risk, on the one hand, and the economic performance of oil-dependent economies on the other. Global and country-specific dynamics are studied together in a Global Vector Autoregression (GVAR) model that allows different lag structures for different variables in different countries. Impulse response functions from the estimated model suggest that new waves of high oil prices are unlikely, despite the likely continuation of high global financial liquidity and heightened geopolitical risk, which had driven earlier episodes of very high oil prices. With oil remaining at modest to low prices by recent historical standards, we study the prospects for economic growth in oil-dependent economies through dramatic increases in domestic investment, as planned under Visions 2030 of a number of Arab economies, and conclude that success is unlikely.
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Papers by Mahmoud El-Gamal