Most developing countries have failed to catch up economically to advanced industrial countries in the process of globalization. Arab countries are no exception in this regard. Rather, recent reports suggest that Arab countries have even underperformed when compared with other developing countries. According to the World Bank, “the results on the ground, and especially growth, remained disappointing.” Furthermore, according to various experts, the major responsibility for the poor economic growth performance rests with the Arab countries themselves. Frequently mentioned domestic policy failures include the strong and interventionist role of the state, poor integration into international trade and insufficient attractiveness to foreign direct investment (FDI).

We assess the empirical relevance of these claims in the following. In addition, we raise some propositions that have received less attention in the literature. Apart from economic policy failure, we check whether exogenous factors and institutional deficiencies prevented higher economic growth of Arab countries. The subsequent analysis covers 18 Arab countries, namely the 15 members of the Arab Planning Institute (API) plus Algeria, Morocco and Saudi Arabia. Throughout the paper, a large group of other developing countries in Africa, Asia and Latin America serves as the point of reference, in order to assess the relative position of Arab countries.