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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 4: Theories of Institutions

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THEORIES OF INSTITUTIONS

Introduction

Our empirical results lend strong support to the resource curse theory. Our results have indicated that oil revenues in the oil-producing countries have created a drag on their economic performance. Through further investigation we found institutional quality to be an, or possibly the, important factor accounting for the deleterious effect of the resource curse. These results are particularly discerning as the membership of these oil-producing countries of the OIC indicates that they should be the exemplars of Islamic societies. The direct consequence of practicing the rules and teachings from the divine Qur’an and Sunnah should result in practices of high institutional integrity and quality. Thus, this contradiction in the expected performance and behavior merits further understanding to ensure that priorities and interests are realigned according to the rules of Allah (swt) in order to ameliorate any negative fallout of the resource curse and manage the Almighty’s gift in the way that He intended.

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