Institutions and Development in Oil Exporting Countries

Abstract

The present paper is aimed at analyzing mutual effects of institutions and development in oil-exporting countries(OECs). For this purpose, the mutual effects were compared between Middle Eastern and non-Middle Eastern OECs.Three-stage least squares model was used to evaluate the model based The World Bank's data for the 1996-2014period, and Wald test, Kruskal–Wallis analysis, and least significant difference (LSD) test were further used. Functionof institutions has become a fundamental subject for research, and Middle Eastern countries are of particularimportance in this respect because of their outstanding geopolitical position and significant revenues those make uponexporting oil. Obtained results indicated significant differences in mutual effects of institutions and developmentbetween Middle Eastern and non-Middle Eastern OECs. In both groups of the countries, the effect of development oninstitutions was found to be significantly greater than that of the institutions on the development. Despite similaritiesin oil exporting factor, geographical environment factor, which includes similarities in culture, religion, and particularcustoms, affects the mutual effect of institutions and development. In both groups, estimated impact factor ofdevelopment on institutions exceeded that of institutions on the development. As such, paying attention to thedevelopment not only improves its indices, but also automatically improves performance of the institutions. Similareffect is imposed by the institutions, but rate of changes resulted from the development is higher.