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

Although a millennium ago the Middle East was not an economic laggard, by the 18th century it exhibited clear signs of economic backwardness. The reason for this transformation is that certain components of the region’s legal infrastructure stagnated as their Western counterparts gave 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 and the consequent weaknesses of civil society; 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 weakness of the region’s private economic sectors and its human capital deficiency stand among the lasting consequences of traditional Islamic law.