IMF Working Papers

Market Power in the Middle East

By Yevgeniya Korniyenko, Ahmed K Tohamy, Weining Xin

January 10, 2025

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Format: Chicago

Yevgeniya Korniyenko, Ahmed K Tohamy, and Weining Xin. "Market Power in the Middle East", IMF Working Papers 2025, 001 (2025), accessed January 11, 2025, https://doi.org/10.5089/9798400296871.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

The Middle East (ME) is often perceived as region with rentier economies and uncompetitive markets. Evidence of market power in the region however is scant. In this paper, we ask the following three questions: Is the ME uniquely uncompetitive? Has the evolution of market power in the region traced the global rise in market power? What government policies and actions influenced the market power in the region and can taxes be a way to even the playing field? To answer these questions, we utilize comprehensive firm-level data from Compustat between 2004 and 2022 and employ two methods for estimating markups (production function and cost-share approach). We document that market power among listed firms in the ME is higher than in the US, but on a downward trend. We find that the value-added tax (VAT) reforms introduced by some Gulf states from 2018 to 2022 resulted in a reduction of market power, an additional benefit beyond increasing fiscal space. While policymakers should continue to use available regulatory levers to achieve economic efficiency and a level playing field, VAT could be considered as an alternative instrument.

Subject: Taxes, Value-added tax

Keywords: Firm Behavior, Market Power, Markup, Middle East, Middle East, Value-added tax

Publication Details

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