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Resource Rich Muslim Countries and Islamic Institutional Reforms

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Liza Mydin, Hossein Askari and Abbas Mirakhor

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.

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Chapter 3: Resource Curse in OIC Countries: The Role of Institutions

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RESOURCE CURSE IN OIC COUNTRIES

The Role of Institutions

Introduction

In order to address the presence of resource curse for the oil-producing OIC countries, we adopt a growth regression framework typically employed in the resource-curse literature. Yuxiang and Chen (2011) referred to this model as the “resource-growth model.” More specifically, the models follow the resource growth strand of studies that have looked into institutions as a determinant of economic growth in countries with abundant depletable natural resources (see Bjorvatn, Farzanegan, & Schneider, 2012; Costa & Santos, 2013; El Anshasy & Katsaiti, 2013; Latif, Farooq, Loganathan, & Shahbaz, 2014; Mehlum, Moene, & Torvik, 2006; Oskenbayev, Yilmaz, & Abdulla, 2013; Tsani, 2015) The base model is as follows:

Model 1

Where Ln Y is the log of real GDP per capita, ln OilR is the log of oil rent, INST is a measure of institutional factors, ln FD is the log of the measure of financial development, and X stands for the control variables and refers to the error term. i and t respectively represent country and time. The key variable ← 49 | 50 → of interest in the model is oil rent. Logically oil revenues would affect GDP positively. However, it is well noted that some countries with abundance of resources are observed to progress slower due to the resource curse. Accordingly, if β1 is greater than zero, it shows that oil rent contributes positively to GDP....

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