June, 2003

Why the Middle East is Economically Underdeveloped: Historical Mechanisms of Institutional Stagnation

  • Timur Kuran

    Visiting Scholar, F.A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics
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A millennium ago the Middle East was not an economic laggard, but by the 18th century it was exhibiting clear signs of economic stagnation. The reason is that certain components of the region’s legal infrastructure ossified during a long period when their Western counterparts were giving way to the modern economy. Among the institutions that generated evolutionary bottlenecks are the Islamic law of inheritance (which inhibited capital accumulation), the absence in Islamic law of the concept of a corporation (which kept civil society weak), and the waqf (which locked vast resources into unproductive organizations for the delivery of social services). All of these obstacles to economic development were largely overcome through radical reforms initiated in the nineteenth century. Nevertheless, traditional Islamic law remains a factor in the Middle East’s ongoing economic disappointments. The weaknesses of the region’s private economic sectors and its deficiencies of human capital are among the lasting consequences of traditional Islamic law.