Are MENA Countries Reaping the Benefits of Inflows? A Comparative Analysis of Migrants' Remittances and FDI Flows

Many developing countries are resource-constrained – that is, they are running a current account deficit. The deficit in the current account indicates that aggregate demand exceeds aggregate supply. Alternatively, domestic investment cannot be financed using national savings, necessitating continued reliance on foreign resources to fill in the resource gap. Given the resource deficit, many countries have taken a closer look into ways to revive the current account balance and supplement domestic resources. There are two policy tracks. First, domestic policies may aim at constraining aggregate demand, particularly domestic consumption, to generate more domestic savings and finance domestic investment. Under this agenda, constraining the government budget deficit usually takes top priority. The second priority is to pursue reforms to expand productive capacity and increase aggregate supply. The former track (demand management) may prove to be difficult to implement, given priorities for fiscal spending and in light of constraints on government revenues. The second track (supply management) is even more difficult given resource constraints and the time necessary to stimulate output supply and implement structural reforms