Economic Policy Strategies and Development Outcomes in the Middle East, 1950–2000: Evidence from Oil Revenues, Conflict, and Institutional Dynamics
Abstract
This research looks at how economic policy has affected the paths of Middle Eastern countries from 1950 to 2000 in the light of severe oil price changes, political upheaval and recurrent instability. The research using three key development lenses, structural transformation, rentier-state theory and institutional economics, demonstrates their analytical relevance in the study. Oil revenues gave economies more power but also exposed them to more volatility. Also, recurring wars and persistent political instability imposed heavy and long-lasting economic and social costs on these countries. Countries that strengthened their institutions and sought real diversification were better able to absorb shocks and maintain growth over time. The study employs a balanced panel for seven economies, and uses history and econometrics to test these propositions. The analysis uses well-known macroeconomic measures which are growth, unemployment and inflation. Also included are measures of oil income, intensity of conflict, and quality of governance. Evidence from fixed-effects and difference-in-differences models supported by interaction terms and instrumental-variable checks suggests that while oil windfalls may induce an initial growth spurt, in the longer run, they make countries more vulnerable. Similarly, while conflict may have an instantaneous negative growth effect, in the longer run, conflict depresses growth. On the other hand, enhancing institutional quality significantly multiplies the capacity of states to manage volatility and support recovery. According to the findings, the policy agenda should focus on building stronger institutions while managing realistic diversification and fiscal management system. So, it should have the capability of smoothing commodity cycle issues. Further, it remains highly relevant to the region while the world is gradually moving toward a post-oil world economy.
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