Demographics in MENA Countries: A Major Driver for Economic Growth


MENA region is undergoing rapid demographic transition, where 50% of the population is under the age 25 and high youth unemployment rates are argued to be one of the main sources of political instability. In this paper we evaluate the economic impact of the demographic transition for selected MENA countries, namely: Iran, Morocco and Egypt who experience different speeds of transition. We have developed a general equilibrium overlapping generations model with a cost of capital mobilisation as a proxy for financial markets’ efficiency and simulated the demographic trends in each country. We find that the demographic shift will be an important driver for growth in the upcoming decades. Furthermore, our results show that a more efficient financial sector leads to better economic performance. Specifically, youth are the primary beneficiaries: an increase in the financial sector efficiency can reduce up to 8 percentage points of the the unemployment rate for the youngest age group.

This is a preview of subscription content, access via your institution.

Fig. 1

Source: Authors

Fig. 2

Source: Authors’ calculations

Fig. 3

Source: Authors’ calculations


  1. 1.

    Unemployment rate for ages between 12 and 24, are given by national statistics.

  2. 2.

    Generalized method of moments.

  3. 3.

    The pension schemes are not very well developed in the region and many elderly stay in the labor market or depend on their children.

  4. 4.

    Considering migration is beyond the scope of this paper.

  5. 5.

    The classical contributions are introduced in Diamond (1981), Pissarides (1985) and Mortensen and Pissarides (1994).

  6. 6.

    TFP is set to 21, 18.9 and 19.5 in Iran, Morocco and Egypt respectively.

  7. 7.

    Age-productivity profile is estimated almost always by wage differentials, which is quite debatable as the rewards to the seniors maybe due to loyalty or past achievements rather than current productivity, on the other hand older workers importance to the companies is difficult to measure since it can be due to wider networks, knowing better how to deal with problems with lower frequencies etc. Hence, although wage differentials are not the ideal measures for productivity, they are considered one of the best so far.

  8. 8.

    In order to verify that our results are not simply a response to the calibration of the human capital we perform a robustness check (see in “Appendix 3”) where we set the human capital constant among different age groups.

  9. 9.

    10.2% for Morocco, 13% for Egypt and 12.8% for Iran in 2014.

  10. 10.

    United Nations, Department of Economic and Social Affairs, Population Division (2015), custom data acquired via website.

  11. 11.

    The main focus of this paper is on the efficiency of the financial sector and not its size.The literature on the impact of the financial sector on economic growth is very well developed (see Arcand et al. 2015).

  12. 12.

    In this model, like any other overlapping generation settings with perfect foresight the savings is 0 for the oldest age group.

  13. 13.

    The evolution of other variables such as consumption, wages, capital, interest rate and productivity are available upon request.

  14. 14.

    We can perform the same exercise for Morocco and Egypt, the results remain the same.

  15. 15.

    We can perform the same exercise for Iran or Egypt the results remain the same.


  1. Abel, A. B. (2003). The effects of a baby boom on stock prices and capital accumulation in the presence of social security. Econometrica, 71(2), 551–578.

    Article  Google Scholar 

  2. Arcand, J. L., Berkes, E., & Panizza, U. (2015). Too much finance? Journal of Economic Growth, 20(2), 105–148.

    Article  Google Scholar 

  3. Assaad, R. A., Hendy, R., Lassassi, M., & Yassin, S. (2018). Explaining the MENA paradox: Rising educational attainment, yet stagnant female labor force participation. IZA DP No. 11385.

  4. Barro, R. J., & Lee, J. W. (2013). A new data set of educational attainment in the world, 1950–2010. Journal of Development Economics, 104, 184–198.

    Article  Google Scholar 

  5. Ben Naceur, S., & Ghazouani, S. (2007). Stock markets, banks, and economic growth: Empirical evidence from the mena region. Research in International Business and Finance, 21(2), 297–315.

    Article  Google Scholar 

  6. Ben Naceur, S., Ghazouani, S., & Omran, M. (2008). Does stock market liberalization spur financial and economic development in the MENA region? Journal of Comparative Economics, 36(4), 673–693.

    Article  Google Scholar 

  7. Bloom, D., Canning, D., & Sevilla, J. (2003). The demographic dividend: A new perspective on the economic consequences of population change. Santa Monica, CA: Rand Corporation.

    Book  Google Scholar 

  8. Bloom, D. E., & Canning, D. (2004). Global demographic change: Dimensions and economic significance. Technical report, National Bureau of Economic Research.

  9. Bloom, D. E., Kuhn, M., & Prettner, K. (2017). Africa’s prospects for enjoying a demographic dividend. Journal of Demographic Economics, 83(1), 63–76.

    Article  Google Scholar 

  10. Börsch-Supan, A., Ludwig, A., & Winter, J. (2006). Ageing, pension reform and capital flows: A multi-country simulation model. Economica, 73(292), 625–658.

    Article  Google Scholar 

  11. Boucekkine, R., De la Croix, D., & Licandro, O. (2002). Vintage human capital, demographic trends, and endogenous growth. Journal of Economic Theory, 104(2), 340–375.

    Article  Google Scholar 

  12. Chakraborty, S. (2004). Endogenous lifetime and economic growth. Journal of Economic Theory, 116(1), 119–137.

    Article  Google Scholar 

  13. D’Albis, H. (2007). Demographic structure and capital accumulation. Journal of Economic Theory, 132(1), 411–434.

    Article  Google Scholar 

  14. de la Croix, D., Pierrard, O., & Sneessens, H. R. (2013). Aging and pensions in general equilibrium: Labor market imperfections matter. Journal of Economic Dynamics and Control, 37(1), 104–124.

    Article  Google Scholar 

  15. Demirguc-Kunt, A., Klapper, L., Singer, D., Ansar, S., & Hess, J. (2018). The Global Findex Database 2017: Measuring financial inclusion and the fintech revolution. Washington, DC: The World Bank.

    Book  Google Scholar 

  16. Diamond, P. A. (1981). Mobility costs, frictional unemployment, and efficiency. Journal of Political Economy, 89(4), 798–812.

    Article  Google Scholar 

  17. Favero, C., Gozluklu, A. E., & Yang, H. (2015). Demographics and the behavior of interest rates. Working papers, Warwick Business School, Finance Group.

  18. Favero, C. A., Gozluklu, A. E., & Tamoni, A. (2011). Demographic trends, the dividend-price ratio, and the predictability of long-run stock market returns. Journal of Financial and Quantitative Analysis, 46(05), 1493–1520.

    Article  Google Scholar 

  19. Geanakoplos, J., Magill, M., & Quinzii, M. (2004). Demography and the long-run predictability of the stock market. Brookings Papers on Economic Activity, 2004(1), 241–325.

    Article  Google Scholar 

  20. Greenwood, J., Sanchez, J. M., & Wang, C. (2013). Quantifying the impact of financial development on economic development. Review of Economic Dynamics, 16(1), 194–215.

    Article  Google Scholar 

  21. Hagedorn, M., & Manovskii, I. (2008). The cyclical behavior of equilibrium unemployment and vacancies revisited. American Economic Review, 98(4), 1692–1706.

    Article  Google Scholar 

  22. Heijdra, B. J., & Ligthart, J. E. (2006). The macroeconomic dynamics of demographic shocks. Macroeconomic Dynamics, 10(3), 349–370.

    Article  Google Scholar 

  23. Heijdra, B. J., & Mierau, J. O. (2011). The individual life cycle and economic growth: An essay on demographic macroeconomics. De Economist, 159(1), 63–87.

    Article  Google Scholar 

  24. Heijdra, B. J., & Reijnders, L. S. (2016). Human capital accumulation and the macroeconomy in an ageing society. De Economist, 164(3), 297–334.

    Article  Google Scholar 

  25. Lagerlöf, N.-P. (2006). The Galor–Weil model revisited: A quantitative exercise. Review of Economic dynamics, 9(1), 116–142.

    Article  Google Scholar 

  26. Lee, R., & Mason, A. (2007). Population aging, wealth, and economic growth: Demographic dividends and public policy. Background Paper for the World Economic and Social Survey. Department of Economic and Social Affairs, New York, United Nations.

  27. Leibenstein, H. (1966). Allocative efficiency vs.” x-efficiency”. The American Economic Review, 56(3), 392–415.

    Google Scholar 

  28. Lesmond, D. A., Ogden, J. P., & Trzcinka, C. A. (1999). A new estimate of transaction costs. Review of Financial Studies, 12(5), 1113–1141.

    Article  Google Scholar 

  29. Liao, P.-J. (2011). Does demographic change matter for growth? European Economic Review, 55(5), 659–677.

    Article  Google Scholar 

  30. Martins, J. O., Gonand, F., Antolin, P., de la Maisonneuve, C., & Yoo, K.-Y. (2005). The impact of ageing on demand, factor markets and growth. OECD Economics Department Working Papers n° 420, Éditions OCDE, Paris.

  31. Mason, A. (2005). Demographic transition and demographic dividends in developed and developing countries. In United Nations expert group meeting on social and economic implications of changing population age structures (vol. 31). Citeseer.

  32. Mortensen, D. T., & Pissarides, C. A. (1994). Job creation and job destruction in the theory of unemployment. The Review of Economic Studies, 61(3), 397–415.

    Article  Google Scholar 

  33. Pagano, M. (1993). Financial markets and growth: An overview. European Economic Review, 37(2–3), 613–622.

    Article  Google Scholar 

  34. Pissarides, C. A. (1985). Short-run equilibrium dynamics of unemployment, vacancies, and real wages. The American Economic Review, 75(4), 676–690.

    Google Scholar 

  35. Sibai, A. M., Rizk, A., & Kronfol, K. M. (2014). Ageing in the Arab region: Trends, implications and policy options. Beirut, Lebanon: The United Nations Population Fund (UNFPA), Economic and Social Commission of Western Asia (ESCWA) and the Center for Studies on Aging (CSA).

  36. Skirbekk, V. (2004). Age and individual productivity: A literature survey. Vienna Yearbook of Population Research, 2(1), 133–154.

    Article  Google Scholar 

  37. United Nations, Department of Economic and Social Affairs, Population Division (2015). World population prospects: The 2015 revision. New York.

  38. United Nations, Department of Economic and Social Affairs, Population Division. (2019). World population prospects 2019: Highlights (st/esa/ser.a/423).

  39. Yaari, M. E. (1965). Uncertain lifetime, life insurance, and the theory of the consumer. The Review of Economic Studies, 32(2), 137–150.

    Article  Google Scholar 

Download references

Author information



Corresponding author

Correspondence to Hippolyte d’Albis.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

This research has benefited from financial support by PSL Research University, Programme d’Investissements d’avenir, ANR-10-IDEX-0001-02 PSL.

We thank the anonymous reviewers for their careful reading of our manuscript and their insightful suggestions and comments. we also thank the participants of the MCD seminar at International Monetary Fund, specially Hossein Samiei for their helpful remarks and comments. All remaining errors are ours.


Appendix 1: The Demographic Shift Parameters

See Fig. 4, Table 5.

Table 5 Demographic parameters.
Fig. 4

Population dynamics by age group and total. Note: Population of each age group is represented as its share in the total active population (Authors based on UN data set)

The growth rate of the population, Fig. 5, is a decreasing function, although for Iran and Morocco we observe a slight take off in the final periods of the simulation.

Fig. 5

Source: Authors based on UN data set

Active population growth rate.

Appendix 2: Robustness Check for Cost of Investment

In this appendix we show that our results are robust to the initial value of \((1-\varphi )\). In order to do so, we suppose the initial value of \((1-\varphi )\) to be 0.1 instead of 0.2, which means that the cost of allocating capital is 10% in our baseline scenario, the definition of High and Low scenario remains the same, the value of \((1-\varphi )\) in each case is reported in Table 6.

Table 6 The value of \((1-\varphi )\) or the cost of capital accumulation under different scenarios.

The results qualitatively, remain the same, although the initial steady state changes slightly since the initial cost of capital is not the same. The simulation results for Iran are reported in Figs. 6, 7, 8 and 9.Footnote 14

Fig. 6

Source: Authors

GDP level (percentage deviation from the initial steady state) for Iran.

Fig. 7

Source: Authors

GDP per capita (percentage deviation from the initial steady state) for Iran.

Fig. 8

Source: Authors

Unemployment rate evolution by age after the demographic shift (baseline) for Iran.

Fig. 9

Source: Authors

Savings per capita evolution by age for Iran. Note: Savings per capita for different age groups, according to model’s assumptions, the savings is nul for the last age group (55–64).

Appendix 3: Robustness Check, Constant Human Capital

One may argue that our results are merely a mechanical response to the different age-specific human capital, reported in Table 1.

In this appendix we perform the simulations for Morocco, and suppose a constant human capital for all age groups, i.e. \(h_i=2.5 \quad \forall i=1,\ldots,4\) The simulation results are reported in Figs. 10, 11, 12 and 13.Footnote 15

Fig. 10

Source: Authors

GDP level (percentage deviation from the initial steady state).

Fig. 11

Source: Authors

GDP per capita evolution (percentage deviation from the initial steady state).

Fig. 12

Source: Authors

Unemployment rate evolution by age after the demographic shift.

Fig. 13

Source: Authors

Savings per capita evolution by age for Morocco.

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Forouheshfar, Y., El Mekkaoui, N. & d’Albis, H. Demographics in MENA Countries: A Major Driver for Economic Growth. De Economist 168, 183–213 (2020).

Download citation


  • Development
  • MENA region
  • Financial efficiency
  • OLG model
  • Demographic transition

JEL Classification

  • J11
  • E17
  • O16