The Price of Wealth: Economies and Institutions in the Middle East

The Price of Wealth: Economies and Institutions in the Middle East

The Price of Wealth: Economies and Institutions in the Middle East

The Price of Wealth: Economies and Institutions in the Middle East

Synopsis

The emerging consensus that institutions shape political and economic outcomes has produced few theories of institutional change and no defensible theory of institutional origination. Kiren Aziz Chaudhry shows how state and market institutions are created and transformed in Saudi Arabia and Yemen, two countries that typify labor and oil exporters in the developing worlds. In a world where the international economy dramatically affects domestic developments, the question of where institutions come from becomes at once more urgent and more complex. In both Saudi Arabia and Yemen, fundamental state and market institutions forged during a period of isolation at the end of World War I were destroyed and reshaped not once but three times in response to exogenous shocks. Comparing boom-bust cycles, Chaudhry exposes the alternating social and organizational origins of institutions, arguing that both broad changes in the international economy and specific forms of international integration shape institutional outcomes. Labor and oil exporters thus experience identical economic cycles but generate radically different state, market, and financial institutions in response to different resource flows. Chaudhry supplemented years of field work in Saudi Arabia and Yemen with extensive analysis of previously unavailable materials in the Saudi national archives.

Excerpt

In 1973 the international price of oil quadrupled, precipitating the largest and most rapid transfer of wealth in the twentieth century. in the magnitude of the changes they wrought in the global economy, the oil shocks of the 1970s and early 1980s were comparable to the crises of the 1920s and 1930s. They created severe pressures for adjustment in the advanced industrial countries, triggering changes in economic policy and fundamentally altering macroeconomic relationships that had stabilized over the preceding three decades. in the developing world, sovereign and private borrowers gained access to recycled petrodollars, generating a host of economic dependencies that culminated in the debt crisis of the mid-1980s. the oil shocks transformed international financial markets, initiating a trend that assumed institutional form in the liberalization of major financial centers in the 1980s.

At the epicenter of these systemic changes--the Middle East--the deluge of oil revenues flooded a region whose countries had skewed but complementary national factor endowments. What decades of Pan-Arab sentiment had failed to achieve, the oil boom accomplished effortlessly: through the prosperous years of the 1970s and early 1980s, the economies of capital-scarce labor exporters and labor-scarce oil exporters became tightly linked through massive flows of labor and capital across national borders.

Shared resources made shared history. From Morocco to Iraq, the countries in the regional economy experienced three identical episodes of change: the oil boom (1973-1983), the recession leading up to the Gulf War (1984-1990), and the aftermath of the Gulf War. Between 1973 . . .

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