Progression Report: Public Sector Intervention in Libya's Growth

This second-year progression report examines the impact of public sector and state policy interventions on the growth and development of the private sector in Libya. The report begins with an introduction highlighting the dominance of the public sector in Libya and its challenges, followed by a literature review discussing relevant economic theories such as Keynesian economics and financial liberalization. The research aims to understand the reasons for low firm entry, the preference for public sector jobs, and the effects of public sector dominance on private sector growth. The methodology includes a questionnaire and semi-structured interviews to collect data from various stakeholders. The report also outlines ethical considerations and a research timeline. The findings are expected to contribute to the literature and inform policymakers about the impact of public sector dominance on private sector development and the potential for financial liberalization in Libya. The report also includes potential contributions, research aims and objectives, research questions, and detailed methodology which includes questionnaire design, interview process, and data analysis techniques. Preliminary results and ethical considerations are also discussed.

Second year progression report
Impact of public sector and state policy intervention on growth
and development of private sector in Libya
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Table of Contents
1. Introduction..................................................................................................................................3
2. Literature Review.........................................................................................................................3
3. Why this research.........................................................................................................................4
4. Potential contribution..................................................................................................................5
5. Research aims and objectives......................................................................................................5
6. Research Questions......................................................................................................................5
7. Methodology.................................................................................................................................5
7.1 Questionnaire Design: Questionnaire and semi– structure interview..............................7
7.2 Questionnaire and interview administration......................................................................9
7.3 Empirical models and data analysis techniques...............................................................10
7.4 Preliminary responses of questionnaire............................................................................12
7.5 Semi-structure interview....................................................................................................13
8. Ethical considerations................................................................................................................13
9. Research Timeline......................................................................................................................14
10. References...............................................................................................................................16
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1. Introduction
The huge size of the public sector is one of the major challenges that developing countries
such as Libya are facing. The saturated public sector in Libya, which includes both
government agencies and State Own Enterprises (SOEs), employs significant shares of the
country’s labor force which is considerably higher when compared to North African
countries. For example, employment in the public sector ranges from 22 % in Tunisia to
around 33–35% in Syria, Jordan, and Egypt. In Libya, however, public sector employees
make up over 80% of the Libya’s labor force with about 10% being in the country’s oil
industry (World Bank, 2018).
In this report, the public sector in Libya is characterised mainly by a strong dominance
over the private sector. This will help in completing the respective project in an effective
manner and state interventions on the overall growth and development of the private sector.
The respective report includes literature review and research methodology. This will help the
readers in developing a proper understanding of the research topic.
2. Literature Review
The respective chapter, literature review, it is important to first address the theoretical
background of the arguments that have been developed by economists. Second, it is a
question of presenting some experience of the dominance of the public sector over the private
sector.
In the first section, different approaches have been adopted by the researcher in order to
complete the literature review section effectively. According to the liquidity desire principle,
Keynes (1936) indicated that to make sure full employment, a lower degree of interest quotes
is needed than liquidity choice costs. According to this theorist, funding is decided with the
aid of the level of effective demand and the hobby charge. It does not rely upon savings.
Investment demand is a decreasing function of the interest rate, and an increasing function
of the marginal efficiency of capital (Keynes, 1936). This is explained by the fact that the
higher the interest rate, the more investment projects are reduced, thus generating a reduction
in the growth rate. In this case, the state must intervene in the market in the short term to
reduce the unemployment rate. It undertakes to encourage public investment at the expense of
private investment, while minimizing interest rates. This policy is known by the theorists of
financial liberalization policy (McKinnon, 1973 and Shaw, 1973) as financial repression
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policy. According to these economists, the financial repression policy is a set of measures,
imposing monetary and political authorities to finance the deficits and debts of the state.
According to Keynesian theory, investment is determined by the level of effective demand
and the interest rate, but contrary to the theory of financial liberalization, it does not depend
on savings. Investment demand is a decreasing function of the interest rate and an increasing
function of the marginal efficiency of capital (the higher the interest rate, the fewer
investment projects will be carried out and therefore the growth rate slows down). Thus, the
state must intervene in the market in the short term to encourage investment and reduce
unemployment. The Post Keynesian Burkett & Dutt (1991) discussed the hypothesis of the
savings-investment relationship. According to these researchers, an increase in the interest
rate (i) stimulates savings (S), which will lead to a decrease in effective demand (ED), and
consequently investment (I) and the growth rate (g) decrease.
Referring to the Keynesian approach, McKinnon & Shaw (1973) showed that the
dominance of the public quarter to the detriment of the personal sector is mainly the end result
of a fixed of kingdom interventions aimed toward repressing banking pastime and the
offerings supplied through the financial machine to savers, buyers, and producers. The
financial repression coverage is then not able to gain a greatest economic growth fee due to
the fact hobby quotes are set too low. Stiglitz & Weiss (1981) showed that the credit score
marketplace is characterised by an asymmetry of facts between banks and buyers, for this
reason the want to ration credit even in a aggressive market.
On the other hand, it is a question of presenting the conditions required for prosperity of
financial liberalization policy. Primitive conditions, also referred to macroeconomic stability
and prudential regulation and banking supervision. McKinnon (1993) found that
macroeconomic stability is mandatory for the prosperity of financial reforms. However,
Gibson & Tsakalotos (1994) pointed out that this modality alone cannot guarantee the success
of liberalisation. Andersen & Tarp (2003) showed that banking sector reforms are necessary
for the success of financial liberalisation. Second, it is a matter of discussing the order of
financial reform adoption. The third question is related with the liberalisation of the capital
account.
The second section of the respective chapter mainly highlights certain lessons that are
learned from financial liberalisation. Certain experiences are also addressed and this includes
the United States, Eastern Europe, Russia, Asia as well as the MENA region.
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3. Why this research
The primary aim of this research is to enhance the previous chapter of literature review
which is based on the impact of public sector as well as state policy intervention on the
growth and development of private sector. Besides this, it will also enable the policy makers
in Libya to adopt the policy of financial liberalisation in order to ensure effective growth of
the private sector.
4. Potential contribution
This research contributes to the literature in two aspects. First, the Libyan context is the
least exploited in the literature in relation to the dominance of the private sector to the
detriment of the private sector. Second, the introduction of other dimensions in the
questionnaire on this area is another contribution of this research.
5. Research aims and objectives
In essence, the key objectives of this study are to:
1. To examine the reasons for the low firm-entry into private businesses in Libya.
2. To find out the reasons why Libyan labour force dominates the public sector.
3. To investigate the prime reasons for the crisis in Libyan public sector and whether
how such crisis impact on the private sector growth.
4. To analyse the dominance of public sector affects growth and development of private
sector in Libya.
6. Research Questions
This research should attempt to find answer the following questions:
1. Why is the entry of new private firms/businesses very low in Libya?
2. What factors determine the choice to work in public jobs than in private jobs among
Libyans?
3. Are there chances that public dominance has any effect the growth and development
of private sectors and investments in Libya?
4. What are the prime reasons for the crisis in Libyan public sector and how do they
affect the private businesses in Libya?
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7. Methodology
Research methodology is an important chapter in a research and it is very important for the
researcher to adopt appropriate approach in order to present the findings of the research in an
effective manner. There are different ways of approaching the five dimensions of research.
The dimensions ate research design, research strategy, research methodology, research
philosophy and research approach.
Research design is defined “as a set of procedures, instructions and methods through
which the research is conducted.” (Saunders et al., 2009, p.5)). This step shapes the structure
and functions of the search. This is likely to confirm that the evidence obtained is likely to
provide clearer and more convincing answers to the research questions (Frankfort-Nachmias
& Nachmias (2008).
According to Saunders et al (2009), the research Philosophy is defined as: "a system of
beliefs and assumptions about the development of knowledge". In fact, the research
philosophy can be conducted through three types of approaches, namely the quantitative,
qualitative and triangulation approaches (Ticehurst & Veal, 2000).
For research approach, the choice of methods and processes by the researcher focuses on
several factors including the type of research, the type of participants, time and money
constraints, and the qualifications and experience of the researcher (Greene, 2007). To do this,
the researcher should use two main approaches, namely the deductive and the inductive
approach (Bell & Bryman, 2007 and Saunders, et al., 2009).
Research strategy is an important dimension of the research and can be defined as the
mode through which the researcher can conduct the research in an effective manner. in other
words, research strategy is a method that is used by researcher in order to generate desired
output as well as make valid suggestions. The questionnaire survey is a type of quantitative
approach that relates to different approaches of data collection. The most common
quantitative research of data collection are surveys and experiments, that are followed by an
analysis of the data which has been previously collected (Bell & Bryman, 2007).
The research technique refers to the set of rules and canons, allowing sturdy consequences
to be produced (Saunders et al., 2009). These policies guide the procedure of producing
scientific knowledge, containing observations, experiments, theoretical calculations, and
reasoning. This helps verbal exchange among researchers and therefore guarantees extra
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credibility. According to Bell & Bryman (2007), there are two styles of research method:
qualitative and quantitative. As far because the qualitative technique is worried, it appears to
be very useful when there isn't always an awful lot literature available on the issue to hand. It
is likewise essential while the research pursuits to collect statistics about events or studies
about which the researcher knows little (Greene, 2007). This is because the qualitative
approach, on which the researcher relies, is in the form of words or behaviours. As for the
quantitative method, it seems to be more relevant to the researcher. This relevance stems
mainly from the existence of an abundance of literature and information about research and
the easy development of hypotheses. This approach is more helpful in providing solutions
since the level of the problem being examined is more obvious (Saunders et al., 2009).
To conclude, it can be said that it is important to adopt the approach that is appropriate for
the research. In the respective thesis, the approach is adopted in order to analyse the
dominance of the public sector over the private sector in Libya. To do so, a questionnaire
should be used.
7.1 Questionnaire Design: Questionnaire and semi– structure interview
In order to collect the relevant data for the research, both qualitative as well as
quantitative approaches are used. In order to collect data for quantitative research, a
questionnaire has been used. Apart from this, a semi-structured interview was also conducted
and the Libyan people as well as the directors of the institutes in Libya were included. The
questionnaire that is used in the thesis was specifically addressed to the employees within the
economic sector, employees of the National Oil Corporation, professors of the university,
employees of governmental as well as private banks as well as the employees in the
technology companies. The questions are based on the following main themes: reasons for
private sector weakness, determinants of work in public jobs, effects of public sector control
on private sector development and investments, public sector crisis.
It is essential that questions should be formulated in a simple way so that they are
intelligible to respondents. Table 1 present then the proposed questions.
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Table 1. Questionnaire questions
Themes Numbe
r Questions
Reasons for
private sector
weakness
Q1
Do you not see that the absence of administrative and financial
control, and the spread of corruption in the private sector, led to a
decrease in the entry of private sector companies?
Q2 Among the many factors that led to the low incomes of private
sector companies, I agree on one of the following factors*
Determinants of
work in public
jobs
Q3
Did Libya's adoption of the principle of socialism in previous
decades have an impact on the citizen, which made him fear the
experience of privatization and the direction of the private
sector?
Q4
Do you confirm that the Libyans' approach to the public sector
was due to the state’s commitment to employing graduates and
job seekers in its various public sectors?
Effects of public
sector control on
private sector
development and
investments
Q5
Do you think that the effects of the public sector on the private
sector appear in the lack of participation of private sector
representatives in drawing up the state’s public policies, limiting
the sector’s import and investment capacity, and increasing taxes
on it?
Q6
Do you see that the public sector did not allow the existence of a
real strategic company in the private sector, which affected
internal and external investments and did not contribute to the
country's economic growth?
Q7
If you are convinced that the public sector in Libya completely
dominates and influences the private sector, what is the extent of
this influence according to your viewpoint?
Public sector
crisis
Q8
To what extent do you think that the Libyan state's slowdown
and delay in allowing privatization, combating financial and
administrative corruption, and finding solutions to poverty and
unemployment were the main reasons that weakened the public
sector and thus the private sector?
Q9
Do you think that the fluctuation of Libyan foreign and domestic
policy, its instability, and its dependence on oil as the only
source of income contributed to the weakening of the public
sector and created an economic crisis that has negatively affected
the private sector?
Q10 Do you confirm that the rigidity of laws regulating trade and the
economy, the absence of transparency, democracy, and the
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state’s monopoly on strategic factories and companies weakened
the national economy?
As far as the interview is concerned, it was mainly addressed to the directors of Libyan
institutions. The directors were divided into three branches, namely, National Oil Corporation,
public and private banks and technology firms. Also, the questions that were asked during the
interview were based on the main themes, reasons for private sector weakness, determinants
of work in public jobs, effects of public sector, effects of public sector control on private
sector development and investments, public sector crisis. Table 2 then summarises these
different questions.
Table 2. Interview questions
Number Questions
Q1 What do you think about the current public sector?
Q2 How to much the Libya government policy affect towards of private
enterprise?
Q3
How do you explain the current government policy toward the encourage
competition and -market forces for the private sector business in Libya
market?
Q4 How do you explain the Libyan past economic policy about current private
sector?
Q5 Do you think too much state regulation and red tape undermine private
business growth in Libya?
Q6 Do you get any government support, financial loan, to your private business?
Q7 How do you describe the state of public industry in current Libya -situation?
Q8
In your opinion, what are the main causes of the crisis in the Libyan public
sector, and what is the impact of this crisis on the growth and development of
the private sector?
Q9
In your perspective, why does the Libyan workforce dominate the public
sector and how does this affect the rate of entry of companies into private
businesses in Libyan economic?
7.2 Questionnaire and interview administration
A questionnaire is a research tool that includes a fixed of questions or other varieties of
prompts that goals to accumulate records from a respondent. A studies questionnaire is
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generally a mix of close-ended questions and open-ended questions. Open-ended, lengthy-
form questions offer the respondent the potential to problematic on their mind.
In the respective study, the populations studied are the employees of Libya and the
directors of Libyan institutions. The questionnaire was administered to 500 peoples of the
Libyan capital, Tripoli. The choice of Tripoli depends essentially on the political stability of
this region compared to the other regions of the country. The people were divided into seven
categories (see Table 3). The mode of administration of the questionnaire was hybrid; the
choice was made to disseminate the survey via the Internet to the respondents. It allows, on
the one hand, an easy and quick dissemination and, on the other hand, a dissemination at
lower costs.
In addition, the interview was broadcast to 20 directors. The interview was administered
face-to-face. Table 3 summarizes the reparation of director’s categories.
Table 3. Libyan peoples per categories
Questionnaire Interview
Economic sector employees Directors of public and private banks
Employees of the National Oil Corporation Directors of National Oil Corporation
Employees of public and private banks Directors of technology companies
Technology companies’ employees
University professors
University students
Businessmen
7.3 Empirical models and data analysis techniques
In this section, it is important, as a first step, to present the empirical models. As a second
step, it is necessary to describe the data analysis techniques.
7.3.1 Empirical models
The main objective of this examine is to examine the dominance of the public area over
the non-public sector in Libya. In this example, the empirical model is subdivided into steps.
The first step corresponds to measures of the determinants of public region dominance over
the personal area. The second step focuses on the degree of public zone dominance diploma.
Regarding the primary degree, its miles divided into 4 distinguished steps. First, the motives
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for the weakness of the non-public zone are measured. This suggests a causality between the
lack of administrative and financial manipulate, and the spread of corruption and the factors
contributing to low sales for non-public sector corporations.
Second, it is important to measure the determinants of work in public jobs. This, in turn,
evokes another causality between the adoption of the socialism principle and the state's
commitment to employing graduates in its various public sectors.
Third, it's far vital to measure public area manage. This inspires three causal factors.
Firstly, there's a causality between the shortage of participation of personal quarter
representatives in the improvement of kingdom public rules and the established order of a
proper strategic non-public area corporation. Secondly, it's far a causality among the lack of
participation of private zone representatives within the elaboration of state public rules and
the extent of the influence of the general public region. Finally, it's far a causality among the
established order of a authentic strategic personal zone organization and the volume of public
area have an impact on. Fourth, it's miles crucial to measure the private area disaster. This
point to 3 causal factors. First, there's a causality between the slowdown of the Libyan nation
and the delay in the authorisation of privatisations and the fluctuation of Libyan foreign and
home policy, its instability, and its dependence on oil. Second, it's miles a causality between
the slowdown of the Libyan nation and the postpone in authorizing privatizations and the
pressure of legal guidelines regulating alternate and the financial system, the absence of
transparency, democracy, and the country's monopoly on strategic factories and agencies.
Finally, it's far a causality between the fluctuation of Libyan foreign and home policy, its
instability and its dependence on oil and the pressure of laws regulating change and the
economic system, the absence of transparency, democracy, and the nation's monopoly on
strategic factories and agencies.
The second step of the thesis focuses on measuring of the degree of dominance of the
public sector over the private growth based on the four factors.
7.3.2 Data analysis techniques
Data analysis is an important component of a study as it involves analysing the different
data that has been collected in an effective way so as to attain useful insights about the same.
To accomplish that, four primary measures are to be measured. To solution the first step, it is
critical to apply the Mann Whitney test. Mann Whitney's u-take a look at is a non-parametric
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test that compares unbiased samples. This takes a look at does no longer impose application
constraints. It does not recognition on the values of the quantitative variable but at the ranks
of the values. Therefore, it is adapted to discrete quantitative variables or to non-stop
variables when the situations of use of Student's t check are not met.
To measure the dominance of public sector (second step), it is obvious to resort to several
statistical analysis techniques, namely descriptive statistics, Chi-square test for independence,
and Principal Component Analysis (PCA). It should be noted that to analyse the data, it is
obvious to use "SPSS" version 26 software.
It should be stated that earlier than intending with the essential issue analysis, it is vital to
test whether or not the facts are factorizable. This may be done by means of checking the
consequences of the KMO and Bartlett tests. The Kaiser, Meyer and Olkin (KMO) check is an
index of the thing solution adequacy, i.E., it indicates whether or not the gadgets are
consistent and offers adequate measures of standards. The second test to be carried out is
Bartlett's sphericity test. It is used to check whether the correlations among certain objects are
statistically great. It lets in us to observe whether the matrix of correlations acquired is
statistically distinct from an identification matrix; every item is perfectly correlated with itself
(r = 1) however has no correlation with the other objects (r = 0).
Where the data prove to be "factorable", it would therefore be useful to carry out PCA
(principal components analysis) method. Next, the internal reliability should be analysed
using the Cronbach's Alpha to estimate the reliability of the scale of measurement under
study.
7.4 Preliminary responses of questionnaire
By analysing the responses obtained through the questionnaire, it has been found that it
was quite difficult to obtain the responses from the participants. To date, there were 165
responses to this questionnaire, a response rate of almost 33%. These responses are presented
in detail in the following.
In term of gender, it should be noted that the responses are almost the same for women
(43%) and men (57%). In terms of age, it appears that the 30-40 age group has the largest
share of responses compared to the other age groups. Furthermore, the BA education level
represents the highest percentage (46%) compared to the other levels (figure 1).
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