From Social Contract to Arab Spring: Macroeconomic Adjustment under Regime Change

Following the Arab-Spring protests, we examine macroeconomic interactions between a productive firm and a rent-seeking government characterized by a continuous probability of regime shift. The model is able to rationalize the early growth leaps witnessed in many Arab economies (the “Social Contractâ€), as well as their subsequent stagnation. Although post-Spring outcomes are judged benevolent, the macroeconomic inheritance is dependent on the earlier transition characteristics. The model thus sheds light on Arab economic evolutions, the shifting preferences and technologies of authorities and the likely success of economic reforms.