THE LACK OF DEMOCRATIZATION IN MUSLIM–MAJORITY COUNTRIES

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THE LACK OF DEMOCRATIZATION IN MUSLIM–MAJORITY COUNTRIES =================================== The Effect of Oil Income on Econo

December 2, 2013 at 7:25pm

THE LACK OF DEMOCRATIZATION IN MUSLIM–MAJORITY COUNTRIES

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The Effect of Oil Income on Economic Development

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The position of this paper is that the main reason for democracy deficit in Muslim-majority countries is oil income. This paper starts with the economic mechanism to explain whether oil income tends to cause the low level of economic development, which is an impediment for democratization in Muslim-majority countries. In this paper, the level of economic development is taken as the growth rate of GDP per capita. The first reason, described in the literature, is the so-called “Natural Resource Curse” which explains how natural resources such as oil might result in the low level of economic development. Resource–rich countries grow slower and perform worse in terms of economic development than resource–poor countries (e.g. Sachs and Warner, 1995; Sala-i-Martin and Subramanian, 2003; Leite and Weidmann, 1999). Sala-i-Martin and Subramanian (2003) find that due to their dependency on the single resource of oil, the GDP growth rate of Muslim–majority countries makes them more vulnerable to external shocks. Therefore, Muslim–majority countries did not record significant economic development due to the high dependence on external shocks.

The second reason of the low level of economic development is that a big part of oil income comes from external rent, which is called “rentier effect” in economic literature (Acemoglu et. al. 2008; Leite and Weidmann, 1999; Ross, 2001). There are two different “rentier effects”: First, oil income might prolong authoritarian government, and second, it prevents democracy in the state, due to the low economic development. These two effects correlate with each other. The mechanism of “rentier effect” could be caused by the level of taxation. In history we could see that the demand for representation in government appears when tax levels increase. According to Ross (2001), the main reason behind the evolution of democratic institutions in France and England was the high level of taxation. He claims that governments in Muslim–majority countries reduced the level of taxation to push against great demand for accountability. Terry (2007) emphasizes that natural resource income inclines to create “rent” on the states; governments get these types of rents via export taxes and/or corporate taxes. Oil income generates rents, and these rents are largely capturing by government via state owned enterprises (corporate). He also alleges that natural resource extraction uses a small amount of labor, and less labor tends to less development due to high unemployment. All these reasons cause economy to perform poorly in resource-rich countries.

There is evidence that oil income encourages governments’ greater budget expenditure than similar governments without oil (e.g. Inglehart, 2001). In this way, the Muslim–majority countries do not spend their oil income efficiently. The percentage of these governments’ budget on military power is high, which causes the low level of economic development in these states. Terry (2007) tests the impact of oil income on OPEC countries and he finds that the share of military expenditure on OPEC members’ budget expenditure is three times more than developed countries, and two to ten times more than non–oil producing countries. A large part of government spending is also off–budget in oil-rich Muslim-majority countries, which causes inefficiency in economic development.

Governments also spend oil income for state-controlled local and international conferences, wide range of organizations, and professional associations, which push against independent civil society and democratization. This type of spending effect also leads to a loss in fiscal control in Muslim-majority countries. These countries have an overspending and soaring debt problem, and oil income might encourage governments to take on debt and neglect economic development. Increasing oil production prompts governments in Muslim–majority countries to increase the level of debt. Therefore, the level of spending on government budget plays a crucial role for economic development, but oil income dampens efficiency on spending in Muslim–majority countries. In the next section, it will be shown that these reasons hinder democracy in Muslim-majority countries.

The Lack of Democratization in Muslim–Majority Countries

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The empirical analysis by Acemoglu et. al. (2008), for example, alleges that there is a strong relationship between income and democracy, as demonstrated by OECD countries that are rich and have sufficiently high levels of democracy. Conversely, the poor, developing part of the world is less democratic. Other studies have argued that a high level of economic development increases democracy (Stepan and Robertson 2003, Donno and Russett 2004), decreases democracy (Morrison, 2009; Smith, 2008), or has no significant effect (Knack, 2004). Difference approaches from analyzing is different group of countries and times, different econometric methodology, and various possible ways to measure for oil income and democracy in these countries.

Despite this general disagreement, however, a common conclusion is that among the developing economies, there is no significant difference in the level democracy between Muslim and non–Muslim countries. Barro (1999) shows, however, that increases in the standard of living can help to encourage the development of democracy across all types of countries. From this, we might expect that an improvement in the level of economic prosperity matters for improvement in democracy. However, some Muslim–majority countries continue to show a low level of economic prosperity and development, which is the main reason for their lacks of democratization. In other words, because of the low level of economic development in Muslim–majority countries, their governments are less likely to make a push for democracy.

But the low level of economic development is not enough to explain less democratization in Muslim–majority countries. There is another reason which matters for democracy in these types of countries. The lack of democratization also might be explained by “repression effect”, that is, oil income may lead governments to spend revenue to preserve their authoritarian power (Ross, 2001). Entelis (1976) emphasizes that oil income prevents the prospects for democratization in Arab countries, and he shows that oil income gives government an authoritarian power with a huge amount of budget, which could reduce dissidences in these countries. In this respect, Rowley and Smith (2009) show that Muslim-majority governments spend their budgets strengthening military power in the forms of internal security to block opposition and suppress the democratic transformations.

There are several reasons why resource rich countries, including – as Muslim countries, have strong military power. One reason is government need authoritarian power to prevent itself against to global compression, and oil income allows governments to prolong their authoritarian regimes. Other reason is oil income may induce ethnic and regional conflicts especially in Middle East and African countries. A strong military is necessary for government responses in the stability of state in these countries. Collier, Hoeffler and de Soysa (2002) find in their empirical framework that oil income leads to civil war, which increases the importance of strong military power. Consequently, ethnically cracked countries such as oil-producing Arab countries have strong military power, which causes weak democratic development.

“Repression effect” also relates to the level of education, social and cultural changes in the countries, where education and modernization are the main determinants of the level of democracy. According to Inglehart (2001), social and cultural changes have a direct influence on democratization. First, the high level of education causes the public to become more demanding on the political accountability of government. Second, the increases in occupational specialization give strong bargaining power to the skilled public against political pressure.

Although education plays a crucial role in the development of democracy, OPEC members spend less than 4 percent of their GDP for education. The main point for the weak democratization of Muslim–majority countries is that oil income does not encourage a high level of education and does not expand the middle class, which might be a force for cultural and social changes. Consequently, because of the “repression effect”, the formations of social groups which are independent from the government fail in these countries.

Extracts from:

DOES OIL INCOME IMPEDE DEMOCRATIZATION IN MUSLIM–

MAJORITY COUNTRIES?

Osman Nuri ARAS, Elçin SÜLEYMANOV and Ayaz ZEYNALOV

INTERNATIONAL JOURNAL OF SOCIAL SCIENCES AND HUMANITY STUDIES

Vol 4, No 2, 2012

বিষয়: বিবিধ

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