De‐industrialization and re‐industrialization in the Middle East: reflections on the cotton industry in Egypt and in the Izmir region

This article presents an investigation of the process of decline and rebirth of textile manufacturing in two Middle Eastern regions, Egypt and the Izmir region, during the first wave of globalization (1850-1914). Through the application of the ‘Dutch disease’ model, it explores the linkages between terms of trade and industrialization. These are further related to the evolution of price transmission between domestic and global raw cotton markets. Findings indicate that different levels of market integration have contributed to diverging trajectories in industrial development in the two regions: while in Egypt the process of de-industrialization was not reversed, in the Izmir region weaker international price transmission facilitated the creation of a nascent domestic textile industry. However, terms of trade patterns and relative price movements are only one of the causes that can explain the differences between the two regions.