The Elusive Quest for Economic Development in the Arab Countries

This paper reviews the development experience of the Arab countries since World War II, arguing that the lack of inclusive economic and political institutions is the primary cause for the current state of underdevelopment in the region. While macroeconomic mismanagement and oil abundance are important determinants of performance, these factors are shaped primarily by the prevailing political institutions which predated the discovery of oil. In the oil-poor Arab countries, limited progress is attributed to an authoritarian bargain in which the rulers exchanged economic benefits to the poor and the middle class for political acquiesce. Finally, the paper concludes by speculating whether the recent Arab revolts will spread to the rest of the region and whether these revolts will be remembered in the future as a critical juncture towards more inclusive institutions and shared progress. It does not offer a conclusive answer, but suggests that early indications are positive.