Oil and Institutional Stasis in the Persian Gulf

by CIGA Staff

Brief:

Explaining the resource curse is the Dutch Disease theory that warns states with abundant resources, especially oil and gas, from economic failures and lack of development. The author indicates that wealth in the form of oil and gas may have stunned institutional development, leaving Gulf states with an institutional curse, even though oil has been an economic blessing. He also argues that it “is not a resource curse that causes underdevelopment but an institutions curse”. The author explains that the Gulf states oil wealth was discovered at a time when no economies or official institutions were there to be lost. So the room for economic development was different from the experience in the Netherlands and other countries. However, necessary variables need to be considered and firmly understood now in order to reach sound conclusions. First, “narrow economic development” is not the same as “economic development.” Second, economic development that is a result of one sector is an indicator of high risk. Gulf states income is from oil and gas, which leaves other industries and the larger private sector marginalized. Third, Gulf states have pegged their currencies against the USD which helps in avoiding much of the economic problems attributed to the Dutch Disease. Added to a weak institutional infrastructure, limited political independence, and the war in Yemen that consumes their wealth as well as the Yemenis’ lives, all of that would only mean that the Gulf States have much to worry about in the near future.   

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