The Impact of Formal and Informal Institutions on Economic Growth: A Case Study on the MENA Region 65

Regarding the Arab region, GDP per capita virtually stagnated for more than 20 years from 1980. During the same period, GDP per capita in the world's highly industrialized states further increased and the gap between the Middle East and North Africa (MENA) and the highly developed countries widened. However, the differences between Arab countries and the Western states exist not only economically. The countries also differ regarding their political, legal, and social systems. This work explains the differences in development on the basis of institutional economics. In addition to a general theoretical part, an empirical analysis demonstrates the effects of institutions on income, and a historical case study explains the divergent development paths of the Arab region and selected advanced economies.-- Provided by publisher CMYK Contents 11 Figures XI 13 Tables XIII 15 Abbreviations and variables XIV 16 1. Introduction 1 19 2. Institutions – a theoretical approach 10 28 2.1 Introduction 10 28 2.2 Formal and informal institutions 15 33 2.3 Growth-supporting institutions 18 36 2.4 Transaction costs 20 38 2.5 Institutional change and transplantation 21 39 2.6 Institutions and technology 28 46 2.7 Equilibrium view of institutions 33 51 2.7.1 General remarks 33 51 2.7.2 Shared-beliefs cum equilibrium-summary-representation approach 35 53 2.7.2.1 Model I 38 56 2.8 The form of societal organization 47 65 2.8.1 Model II 48 66 2.8.1.1 Horizontal and vertical societal structures 55 73 3. Institutions – an empirical approach 61 79 3.1 Informal institutions 61 79 3.1.1 Trust 63 81 3.1.2 Limited and generalized morality 64 82 3.1.3 Beliefs that encourage the accumulation of physical and human capital 67 85 3.1.3.1 Destiny 67 85 3.1.3.2 Life after death 68 86 3.2 Formal institutions 69 87 3.2.1 Property rights 69 87 3.2.2 Legal system – the rule of law 71 89 3.2.3 Form of government – democracy 73 91 3.3 Measuring institutions – a literature review 75 93 3.4 Endogeneity 83 101 3.5 Deep determinants of growth 86 104 3.6 Methodical issues 88 106 3.6.1 Two stage least squares 89 107 3.7 Religion as an instrumental variable for institutions 92 110 3.8 Regression analysis: the impact of formal and informal institutions on per capita income 101 119 3.8.1 Data 101 119 3.8.2 Regression approach 106 124 3.8.3 Regression results 108 126 4. Institutions and economic development in the MENA region 123 141 4.1 Introduction 123 141 4.2 Arab economic performance 126 144 4.3 Economic development in the second half of the 20th century 129 147 4.4 Total factor productivity 132 150 4.5 Investment 133 151 4.6 Public sector 136 154 4.7 Demography and education 138 156 4.8 Business environment 140 158 4.9 Financial sector 143 161 4.10 Trade 147 165 4.11 Corruption and red tape 148 166 4.12 Political and legal Institutions 150 168 4.12.1 Property rights 151 169 4.12.2 Constraints on the executive and democracy 152 170 4.12.3 Good governance 157 175 4.13 Informal institutions 165 183 4.13.1 Trust 165 183 4.13.2 Control 166 184 4.13.3 Respect and obedience 167 185 5. Differences in early institutional development 176 194 5.1 Introduction 176 194 5.2 The emergence of state and religion 179 197 5.3 The acceptance of Islamic occasionalism and the role of foreign sciences 182 200 5.4 Law 190 208 5.5 Corporate institutions 194 212 5.6 Education 196 214 5.7 The waqf 198 216 5.8 Foreign rule and historical accidents 199 217 5.9 Prohibition of interest 203 221 6. Conclusion: connection between the general institutional analysis and the case study on the MENA region 205 223 References 212 230 Data sources 227 245 Appendix A 229 247 Appendix B 232 250 RS 13,5 mm (RE 19,5 mm) Annotation Regarding the Arab region, GDP per capita virtually stagnated for more than 20 years from 1980. During the same period, GDP per capita in the world's highly industrialized states further increased and the gap between the Middle East and North Africa (MENA) and the highly developed countries widened. However, the differences between Arab countries and the Western states exist not only economically. The countries also differ regarding their political, legal, and social systems. This work explains the differences in development on the basis of institutional economics. In addition to a general theoretical part, an empirical analysis demonstrates the effects of institutions on income, and a historical case study explains the divergent development paths of the Arab region and selected advanced economies This is an open access book available on www.peterlang.com and www.oapen.org. All content published can be shared under the terms of the Creative Commons Attribution 4.0 International License (CC-BY 4.0).