Systemic Factors and Economic
Development in Islamic Countries
For decades, development economists have tried to assess the role of the international economic system in the underdevelopment of many third world countries. This question comes to the fore especially at times of financial crisis, such as the Latin American debt crisis of the 1980s and the emerging markets' currency crises since the mid-1990s.
In the 1970s, the predominant view in the third world was that attempts to catch up economically with the industrialized countries were doomed unless a new world economic order was agreed upon.1 The spectacular economic success of some developing countries has altered this fatalistic view, but because most developing countries, including Muslim states, still lag behind in development and per capita income, the role of systemic factors is still debated.
This chapter discusses the role of systemic factors by (1) identifying those characteristics of the international economic system that may have hindered the third world's development, (2) assessing the empirical relevance of these characteristics for a broad set of developing countries, and (3) evaluating the impact of these characteristics on Islamic countries.
The following analysis has clear limitations: The discussion of systemic factors is limited only to the most important aspects. Moreover, it does not attempt to assess the relative impact of these determinants on economic performance. It is based on data for as many countries as possible, but because of limited data, the sample of Islamic countries as well as the control group of all developing countries is fairly small in some instances.
For the purposes of this chapter, the members of the Organization of the Islamic Conference (OIC) are viewed as Islamic countries. This chapter is divided into four sections: (1) profile of economic development of Muslim states; (2) summary of earlier thinking on the role of systemic factors in hindering economic