NCPA - National Center for Policy Analysis

How Islamic Inheritance Law Impeded Development

November 8, 2001

Until the late Middle Ages, the Muslim world was at least as economically developed as Europe. But then the West began pulling ahead -- with the result that the disparity today has bred resentment.

Economist Timur Kuran has an intriguing theory to explain why economic development in the Middle East lagged that of the West.

Kuran theorizes that Islamic partnership and inheritance laws interacted to keep Middle Eastern enterprises small -- never allowing the development of corporate forms.

  • In the Middle Ages, both Islamic and European law required that a partnership be dissolved if one partner died or was incapacitated -- which tended to limit the size of such arrangements.
  • Then Europe began limiting the consequences of a partner's death by allowing a partner to designate an heir or heirs.
  • By contrast, Islamic law prescribed in rigid detail who would get pieces of the estate, including uncles, cousins, siblings, parents and so on -- thus fragmenting the partnership.
  • This caused Middle Eastern enterprises to remain small, while Europe evolved new economic forms which led to transferable shares and stock exchanges.

When Europeans began dominating Middle East trade, they seized the option of organizing their businesses under European laws. Not until the 19th century did Middle Eastern governments begin adopting secular commercial laws that allowed Muslim-owned enterprises to grow.

But by that time, growth of Muslim business organizations had been stunted for centuries.

Source: Virginia Postrel (Reason magazine), "Economic Scene: The Decline of the Muslim Middle East, and the Roots of Resentment, Can Be Traced to Islamic Inheritance Law," New York Times, November 8, 2001; Timur Kuran, "The Islamic Commercial Crisis: Institutional Roots of the Delay in the Middle East's Economic Modernization," USC CLEO Research Paper No. C01-12, USC Center in Law, Economics and Organization, University of Southern California, March 9, 2001.

For SSRN abstract

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=276377

 

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