Essays in Institutional Economics, with special focus on Muslim-majority countries

This thesis is an attempt to gain a better understanding of how institutions, whether formal or informal, influence individual- and societal-level economic choices, especially in the Muslim-majority countries. It consists of six research papers that contribute to the economic analysis of institution...

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Bibliographic Details
Main Author: Gouda, Moamen
Contributors: Leipold, Helmut (Prof. Dr.) (Thesis advisor)
Format: Doctoral Thesis
Published: Philipps-Universität Marburg 2014
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Summary:This thesis is an attempt to gain a better understanding of how institutions, whether formal or informal, influence individual- and societal-level economic choices, especially in the Muslim-majority countries. It consists of six research papers that contribute to the economic analysis of institutions. The first paper, published in the Journal of World Intellectual Property in 2011, investigates the relationship between intellectual property piracy and religiosity in several Muslim-majority countries. The second paper, published in Constitutional Political Economy in 2013, focuses on the future of constitutionalism in Arab Spring countries by analyzing a unique Islamic constitution from a rule of law perspective. Another paper published in a collective volume tackles the relationship between business ethics and economic systems in Muslim-majority countries. The fourth paper is a novel application of economic analysis to Islamic criminal law, as it analyzes the marginal deterrence in Islamic criminal law of theft. The fifth paper, which is currently under second round review from Journal of Economics and Statistics, empirically investigates the relationship between the religiously induced internalized values of individuals in 78 countries and their specific attitudes toward corruption using World Value Survey data. In the sixth and final paper of my dissertation, I empirically investigate the long-term relationship between the legacy of slavery and contemporary violent crime in USA. Paper 1 (with Nora El-Bialy): “Can Shari’a be a Deterrent for Intellectual Property Piracy in Islamic Countries?” examines the stance of Islamic legal traditions (Shari’a) towards intellectual property (IP) piracy. Although Muslims may differ on what Shari’a dictates, most of them view Shari’a as God’s law and as a main ingredient of Islamic belief system. Since piracy rates in Muslim-majority countries are considerably high in light of existing formal IPR laws, it becomes essential to test if Shari’a has any relation with such phenomenon. Our hypothesis is that, although Muslim countries have formal institutions or laws that protect intellectual property rights (IPR), little attention is given to informal institutions, or human morals, regarding IPR piracy, which negatively affects the enforcement level of IPR laws in these countries. Muslims may not be convinced that IPR violations, although illegal, are unethical or forbidden by Islamic Shari’a. In order to test the level of adherence of Muslims to Shari’a to support our hypothesis, we develop a “religious loyalty” index (RLI). Comparing adherence of followers of different religions with those of Islam, Muslim countries have the highest religiosity level, positively affecting obedience level to Shari’a. Consequently, an investigation of how Shari’a views IPR piracy is conducted. As Islam generally prohibits IPR piracy, the study concludes by offering a set of policy recommendations that can effectively help in minimizing IPR piracy in Muslim countries. Paper 2: “Islamic Constitutionalism and Rule of Law: A Constitutional Economics Perspective” investigates the relationship between constitutionalism from an Islamic perspective and the concept of rule of law. Al Azhar, one of the oldest and most respected Sunni religious institutions in the world, developed an Islamic constitution with the purpose of making it “available to any country that wishes to model itself after the Islamic Shari’a”. Facing the differences among Islamic sects, Al-Azhar’s constitution preamble states that “the principles laid down in this constitution agree with those shared between the Islamic schools of law to the utmost extent possible”. Since its completion in 1978, this Islamic constitution received little attention from policy makers in Muslim-majority countries as well as legal scholars worldwide. Only after the January 25 uprising did Islamic political movements in Egypt announce their desire to use this constitution as their proposed model for the upcoming Egyptian constitution. Having this in mind, this study uses this constitution as a model of Islamic constitutionalism, whereby its stance regarding rule of law is examined using six main principles: (1) separation of powers, (2) clear and stable laws, (3) judicial independence and judicial review, (4) equal access to justice, (5) the state is bound by the law, and (6) protection of basic human rights. I find the Al-Azhar’s constitution to be incompatible with essential concepts of rule of law. For example, the powers vested in the head of the Islamic state are enormous, making the executive branch of government far superior to the legislative and judicial branches. Women and non- Muslims are explicitly discriminated against throughout the constitution. Moreover, laws stemming from this constitution are not stable since many differences exist among schools of Islamic jurisprudence (fiqh). Consequently, we show that state-of-the-art Islamic constitutionalism lacks essential components needed in any constitution based on rule of law. Paper 3 (with Helmut Leipold): “Wirtschaftsethik und Wirtschaftssysteme in islamischen Ländern” investigates if the Islamic ethics related to business and economics could offer a solution to deter future financial crises. For this purpose, we investigate the principles of Islamic business ethics and Islamic business law. Our analysis shows that the principles of Islamic economic ethics resemble the objectives of the social market economy model. We further comparatively analyze the economic systems of members of the Organization of the Islamic Cooperation (OIC). Although Islamic countries have heterogeneous economic structures, we perceive that they are somewhat homogenous in their lack of democracy and their low levels of rule of law. Moreover, the majority of Islamic countries can be categorized as rentier states. This is not surprising in countries where religion and state are in close alliance. The paper concludes that the principles of Islamic economic ethics do not offer a specific solution to prevent future financial crises. Paper 4: “Stealing more is better? An Economic Analysis of Islamic Law of Theft” is the very first attempt towards applying economic analysis to Islamic criminal law. Islamic criminal law offers two main punishments regarding theft; hadd, a fixed penalty that requires the amputation of the offender’s right hand under certain conditions and ta’zir, a punishment that is left to the discretion of the judge and is less severe than hadd. Deterrence is one of the main objectives for Islamic criminal law. However, from the viewpoint of marginal deterrence and multiplier principles, lesser crimes with low social harm are punished severely with hadd while crimes with high social harm are punished with ta’zir. Moreover, as the probability of detection and sanction is less in crimes of high social harm, criminals would have better incentive to commit the latter type of crimes. This study implies that if Islamic criminal law is introduced in Arab Spring countries in its current form, crimes of high social cost are likely to become more frequent. A call for a modern reinterpretation and re-coding of Islamic criminal law of theft is essential for any successful attempt to apply Shari’a in Muslim-majority countries. Paper 5 (with Sang-Min Park): “Religious Loyalty and Acceptance of Corruption” investigates the relationship between religiously-induced internalized values of individuals and their specific attitudes regarding the acceptance of corruption. The dataset on which our study is based was collected by the World Values Survey from 164,209 individuals in 80 countries surveyed during a period of 13 years. We propose that individual attitudes towards corruption and religion are associated given certain societal and institutional contexts. Our results show that although there is a negative and statistically significant effect of religiosity on the acceptance of corruption on the individual level, this effect is small. We find that there is a threshold value of religiosity below which corruption is more easily accepted by individuals. Our interpretation for this result is simple: individuals with minimal religiosity are generally less constrained by religious norms; specifically, religious norms that are opposed to corruption are less binding on these individuals, resulting in them having a greater propensity to accept corruption. Religiosity, therefore, does lower the acceptance of corruption only when it exceeds a certain threshold for a specific individual. Paper 6: “The Long-Term Effect of Slavery on Violent Crime: Evidence from US Counties” is the first to empirically investigate the long-term relationship between slavery and violence in USA. Although qualitative evidence shows that slavery has been a key factor behind the prevalence of violence, especially in South USA (Cash, 1941; Franklin, 1956; Gastil, 1971; Wyatt-Brown, 1986), no empirical evidence supports this claim so far. I propose that the proportion of slaves in a certain county in 1860 is positively correlated with the rate of violent crimes in 2000. As violence was extensively used to control slaves for hundreds of years, a culture of violence was formed and persisted through time. Extending Engermann and Sokoloff’s hypotheses (1997; 2002), I empirically examine two hypotheses: (1) slavery has a long-term effect on violent crime. (2) Such long-term effect is mainly transmitted through inequality. The results show that slavery in 1860 is positively associated with violent crime in 2000. Testing the second hypothesis, I find that land inequality in 1860 has a long-term significant effect on contemporary violent crime.