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Resource Rich Muslim Countries and Islamic Institutional Reforms

by Liza Mydin (Author) Hossein Askari (Author) Abbas Mirakhor (Author)
Monographs XX, 172 Pages

Table Of Content

  • Cover
  • Title
  • Copyright
  • About the author(s)/editor(s)
  • About the book
  • This eBook can be cited
  • Contents
  • Illustrations
  • Figure
  • Tables
  • Foreword (Latifah Merican Cheong)
  • Preface
  • Acknowledgments
  • Abbreviations
  • Chapter 1: The OIC Countries
  • Introduction
  • OIC Countries and the Resource Curse
  • Conclusion
  • References
  • Chapter 2: The Resource Curse—Theory, Explanations and Its Reversal
  • Introduction
  • The Resource Curse Theory—Sachs and Warner
  • Supporters of the Resource Curse Theory
  • Resource Curse Explanation—Dutch Disease
  • Resource Curse Explanation—The Role of Institutions (Nigerian Disease)
  • Military Expenditures, Armed Conflicts and the Resource Curse Theory
  • Assessment of the Explanations for the Resource Curse
  • Natural Resource Effects on Financial Development
  • Reversing the Resource Curse
  • Conclusion
  • References
  • Chapter 3: Resource Curse in OIC Countries: The Role of Institutions
  • Introduction
  • Institutions and Oil Rent Relations
  • Financial Development and Oil Rent Relations
  • Data
  • Estimation Methods
  • Basic Panel Estimation
  • Pooled Mean Group (“PMG”) and Mean Group (“MG”) Methods
  • The Results
  • Empirical Results for Model 1—Resource Growth Equation
  • Empirical Results for Model 2—Resource Growth Equation with Interaction Term
  • Empirical Results for Model 3—Institutions and Oil Rent Relations
  • Empirical Results for Model 4—Financial Development and Oil Rent Relations
  • Robustness Analysis
  • PMG Method
  • Comparison with Top Oil-Producing Non-OIC Countries
  • Conclusion
  • References
  • Chapter 4: Theories of Institutions
  • Introduction
  • Definition of Institutions in the Conventional Literature
  • Institutional Change Propositions (North)
  • Do Effective Institutions Support Economic Growth?
  • Institutions According to Islam
  • Islamic Institutional Economic Framework
  • Do Institutions Support Sustained Economic Growth?
  • Institutional Condition of Muslim Countries
  • Conclusion
  • References
  • Chapter 5: Addressing the Resource Curse through an Ideal Islamic Institutional Framework
  • Introduction
  • Proposed Recommendations to Address the Curse and Strengthen Institutions
  • Redirection of Education
  • Duties and Accountability of State Authority and Citizens
  • Enhanced Supervision
  • Is Economic Reform Possible in the Absence of Political Reform?
  • Conclusion
  • References
  • Chapter 6: Policy Assessment: Saudi Arabia, Malaysia and Qatar
  • Introduction
  • Saudi Arabia
  • Malaysia
  • Qatar
  • Conclusion
  • References
  • Chapter 7: Summary, Conclusions and Looking Ahead
  • Introduction
  • Summary and Conclusions
  • References
  • Index
  • Series index

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ILLUSTRATIONS

Figure

6.1: Percentage Distribution of the Population by Ethnic Group, Malaysia.

Tables

2.1: Sachs and Warner Dutch Disease Sector Breakdown.

3.1: Data Description.

3.2: Panel Estimation Results of Model 1 (Dependent Variable GDP).

3.3: Panel Estimation Results of Model 2 (Dependent Variable GDP).

3.4: Marginal Effects of Oil Rent on GDP.

3.5: Estimation Results of Model 3 (Dependent Variable Institutions).

3.6: Estimation Results of Model 4 (Dependent Variable Financial Development). ← ix | x →

3.7: PMG Estimation Results for Models 1–4.

3.8: Panel Estimation Results of Model 1.

4.1: Economic Islamicity Index (Top 10 Countries).

4.2: Legal and Governance Islamicity Index (Top 10 Countries).

4.3: Human and Political Rights Islamicity Index (Top 10 Countries).

4.4: International Relations Islamicity Index (Top 10 Countries).

4.5: Overall Islamicity Index (Top 10 Countries).

4.6: Economic Islamicity Index (Countries Included in This Study).

4.7: Legal and Governance Islamicity Index (Countries Included in This Study).

4.8: Human and Political Islamicity Index (Countries Included in This Study).

4.9: International Relations Islamicity Index (Countries Included in This Study).

4.10: Overall Islamicity Index of the Countries (Countries Included in This Study).

4.11: Corruption Perceptions Index Ranking (Countries Included in This Study).

| xi →

FOREWORD

Latifah Merican Cheong

There have been numerous studies on the resource curse. This book is a first on this subject from a new perspective and focus of the resource curse in Muslim countries endowed with natural resources. The authors have done extensive economic analysis to trace the developments in the commodities-rich Muslim countries and provide the evidence-based explanations for their rather inferior economic performance. In many Muslim countries, the unfortunate loss of opportunities to gain economically has indeed been due to presence of oil, the major resource curse. The more innovative aspect of the analysis of the resource curse in these Muslim majority countries is the attribution of poor governance and institutional failure as key factors causing the severe lag in economic performance.

The other innovation in the book is the study of the resource curse from an Islamic lens. Would application of the fundamental Islamic principles of justice and equal distribution of resource benefits been able to reverse the resource curse? This book provides an illuminating understanding of the Qur’an that the gatekeepers of countries endowed with resources are duty bound to exercise the highest standards of morality and good governance to ensure fair distribution of the benefits from the resources gift from God to the population. This analysis of the impact of poor governance on managing ← xi | xii → resources is timely at this time when there is a global momentum to put in place good governance across the whole spectrum of political, social, financial and economic management. This book makes invaluable contributions on the merits of applying Islamic principles on development and distribution of wealth emanating from resources.

The authors provide policy recommendations that are aligned within an Islamic framework and discuss at length how these Muslim countries can achieve the ideal structure envisioned by the Qur’an. They trace the fundamental differences between Institutions from the conventional and the Islamic perspectives and present why an Islamic institutional framework offers the most complete solution for the countries managing rich resources.

This added Islamic perspective on managing resources makes recommendations on resolving the resource curse as one of the most comprehensive in resource curse literature. These recommendations of adopting Islamic principles on economic management as envisioned in the Qur’an are also modern in terms of the emphasis on the importance of building strong institutions and leadership practising good governance as essential in deriving optimal rewards from the resource gift. Islamic principles of management ranging from rules of behavior relating to property rights, trust on contractual arrangements and conduct of economic dealings to economic policies undertaken with social justice and high standards of morality, are all aligned with the current global concerns of promoting social unity in the market place for more equitable distribution of wealth in the pursuit of social justice.

There is no evidence that prior research had looked at Islamic teachings to ameliorate the resource curse problem. This book is an important contribution and could serve as a reference in Islamic economics and studies to manage depletable resources.

The country specific studies on Malaysia, Saudi Arabia and Qatar allow readers to understand the extent of the resource curse issue in leading resource rich Muslim countries. They provide the stark reality that corrosion of quality of institutions in these countries and the misallocation of the vast wealth from natural resources have resulted in imbalanced and unsatisfactory economic conditions. The authors provide sound justification on the need to change the current institutional framework.

In the case of Malaysia in particular which made great strides in affirmative action policies for more equitable distribution of wealth, a more Islamic slant in using proceeds of resource development could have avoided the channeling of benefits to certain groups and the income disparity in the Muslim ← xii | xiii → population may not remain so stark today, more than 40 years after implementing the New Economic Policy. The Malaysian country study demonstrates the more acute impact of political actions undermining competitive behavior to favor select groups. Non-adherence to Islamic principles of distribution of the resource wealth show how the behavior of the political elite entrusted to take care of it citizens can actually deepen the resources curse. Policies which aim to maintain power while weakening institutions further deepen the social injustice in resource management. Results could have been different for Malaysia if leaders had sustained the institutions built by the forefathers and applied the globally accepted principles of fairness and social justice through good governance in managing the rich resources in the country. The analytical content and evidence based analysis make this book a valuable contribution to the understanding of the resource curse problem in Muslim countries. The suggestions in adopting specific principles of economic management aligned to fundamental Islamic principles of justice in distribution of resource benefits are worth serious consideration for resource rich Muslim countries to begin their path towards building strong institutions and practicing good governance.

Summary

Resource Rich Muslim Countries and Islamic Institutional Reforms explores the "resource curse," a condition in which a country’s abundance of natural resources is negatively linked with the country’s development and economic growth, in resource rich Muslim countries. The resource curse puzzle has been studied for over twenty years, with prior researchers looking to prove its existence and explore its causes. Recent studies have begun to indicate institutional failure as a likely cause of the curse, as wealth of resources tends to cause counterproductive behaviors such as rent-seeking, patronage and corruption. The subpar economic performance of resource rich Muslim countries in the Organization of the Islamic Cooperation (OIC) could be attributed to the manifestation of a resource curse. Collectively, the member countries of the OIC contribute over 9% of the world’s total GDP with 22.8% of the world’s population. Saudi Arabia and the United Arab Emirates alone contribute about 17% of world oil production. Resource rich Muslim countries should be at the forefront of economic performance and growth, yet we see the opposite when we compare the performance of these countries to countries that are not resource rich (such as Spain, France, Hong Kong and Japan). Through an analysis of sample countries, the authors have discovered that natural resources exert a drag on the countries’ economic growth, thereby indicating the presence of the resource curse. Their research also found weaknesses in the quality of institutions as the cause of the curse. To counteract the negative effects of the resource curse in resource rich Muslim countries, the authors provide a number of Islamic institutional reforms.

Details

Pages
XX, 172
ISBN (PDF)
9781433143526
ISBN (ePUB)
9781433143533
ISBN (MOBI)
9781433143540
ISBN (Book)
9781433143519
Language
English
Publication date
2018 (March)
Published
New York, Bern, Berlin, Bruxelles, Vienna, Oxford, Wien, 2018. XX, 172 pp., 1 b/w ill., 20 tbl.

Biographical notes

Liza Mydin (Author) Hossein Askari (Author) Abbas Mirakhor (Author)

Liza Mydin holds a PhD in Islamic finance from the International Centre for Education in Islamic Finance (INCEIF), Malaysia, and is currently Head of Research and Advisory at Maybank Islamic, Malaysia. Dr. Mydin was previously in the Global Islamic Finance Advisory Unit of PricewaterhouseCoopers and afterwards joined Al Rajhi Bank Malaysia as Vice President of Compliance in 2010. In 2016, she was a visiting scholar at the George Washington University and was involved in conducting post-doctoral research for the Islamicity Index Project. Hossein Askari is Iran Professor of International Business and International Affairs at the George Washington University. He served for two-and-a-half years on the executive board of the International Monetary Fund and was Special Advisor to the Minister of Finance of Saudi Arabia. During the mid-1980s, he was the director of the team that developed the first comprehensive domestic, regional and international energy models and plan for Saudi Arabia. Abbas Mirakhor is a retired Professor of Economics and Finance. He was the first Chair of Islamic Finance at the International Centre for Education in Islamic Finance (INCEIF), Malaysia. Prior to that, he worked at the International Monetary Fund for twenty-four years, where he was a member of the staff, later a member of the executive board and finally Dean of the Executive Board.

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Title: Resource Rich Muslim Countries and Islamic Institutional Reforms