Why Are Muslim Countries Underdeveloped? A System GMM Approach

• Published in: Journal of economic cooperation & development 2022-01, Vol.43 (4), p.45-76
• Main Authors: Al Fozaie, Mohammad Tariq, Wahid, Hairunnizam
• Format: Article
• Language: English
• Subjects: Behavior; Capitalism; Cultural heritage; Data models; Economic growth; Freedoms; Generalized method of moments; Human development; Human Development Index; Hypotheses; Insight; Islam; Islamic countries; Muslims; Panel data; Political risk; Public sector; Religion; Social development; Time series
• ISSN: 1308-7800

Many authors argue that Islam is anti-growth. The performance of Muslim countries in various economic, social, and political indicators support such hypothesis. This paper argues that Muslim countries are underdeveloped not due to Islam, but due to the engagement of its individuals and institutions in development hindering behavior. To test this hypothesis, a dynamic panel data model applying a System Generalized Method of Moments approach (SysGMM) is utilized to test the relationship between a country's level of development, represented by the Human Development Index (HDI), and several development hindering behavior measures represented by restricting economic freedoms, rentierism, political instability, social dissension, and poor knowledge creation. The dataset has a time series of 13 years (2007-2019), for 151 countries, of which 49 are Muslim countries. The study finds a negative and significant relationship between human development (DV), restricting economic freedoms, political instability, social dissension, and poor knowledge creation (IV's). Although the study provides insight as to why Muslim countries are underdeveloped, it falls short in addressing whether Islam is anti-growth. A better approach is to utilize an inductive methodology which relies on theory and literature as well as a deductive methodology which seeks to study the religion itself for any principles which are pro or anti-development.