Role of Islam in Economic Develpoment

International Ataturk-Alatoo University Role of Islam in Bread-and-butter Development Done: Aizhamal ZHUMALIEVA Checked: Ibragim KONCAK 2012 Content Introduction………………………………………………………………. 1 Statistics and Trends………………………………………………………2 Economics of Abundance Address ………………………………………. 3 Islamic Merchants…………………………………………………………5 Islamic Law and Bread-and-butter Growth………………………………………6 Islamic Banking…………………………………………………………... 6 Conclusion…………………………………………………………………7 Introduction Researchers like Huntington (1996), Landes (1999), and Inglehart and Baker (2000) altercate that explanations for bread-and-butter advance should go added to accommodate a nation’s culture. Their altercation actually makes faculty because adeptness affects claimed ancestry such as honesty, thrift, alertness to assignment hard, and artlessness to stranges, which appropriately influences bread-and-butter outcomes. Adoration is anticipation to be one of the best important ambit of culture. Thus Weber (1930) argued that religious practices and behavior had important after-effects for bread-and-butter development. Islam is no exception, aloof as David Landes, the Harvard bread-and-butter historian, wrote in his book "The Abundance and Abjection of Nations", "No one can accept the bread-and-butter achievement of the Muslim nations after accessory to the acquaintance of Islam as acceptance and culture," In 10th century, which is accepted as Golden Age for Islam, Muslim societies led the apple in science, philosophy, adeptness and prosperity. But anon it came to the end, and Islamic countries accept continued lagged abaft alternative countries. It is accessible to ascertain with the advice of assay of accepted all-embracing cyberbanking data. Those abstracts highlight the abundant asperity in assets amid Christian ascendant and Muslim ascendant countries. The richest countries in the apple are those of Europe, North America, and East Asia. Alone a baby cardinal of Muslim countries access to their assets levels, and this is alone due to their oil wealth. In abounding of Muslim countries assets advance is low so that gap is widening. Scholars are abiding that it is not aloof accompaniment but Islam has cogent access on bread-and-butter ascents and descents. If it is so, what role does Islam comedy in bread-and-butter performance? How does it affect bread-and-butter advancement? What spheres and industries does Islam influence? Is there any way to break the problem? The purpose of this cardboard is to appearance the accord amid Islam and abridgement and appraisal some Islamic mechanisms that annoyance the bread-and-butter activity. The aboriginal allotment of the cardboard suggests some statistical abstracts that reflects accepted angel of bread-and-butter accompaniment of Islamic countries. Next area defines the action of abundance address and appulse of Islam on capital, innovation, and literacy. After, Islamic trading patterns are analyzed. Then Timur Kuran’s, acclaimed economist, arguments about bread-and-butter aftereffect of Islam are stated. And the aftermost allotment reviews Islamic cyberbanking institutions. Statistics and Trends Level of bread-and-butter development, whether abstinent by per capita assets or variables like trade, literacy, science, scholarship and technology, has continued been lower in the Islamic apple than in Christian world, abnormally those of in West. Actuality is one empiric abstracts that prove this bearings with assets per capita actuality a abased variable. Table 1 is a corruption model, which accommodate 132 countries covered by the Apple Development Report for 1995, shows that accord exists amid Islam and per capita income. In the aboriginal regression, absolute capricious is the allotment of Muslim aural absolute population, this corruption indicates statistically cogent abrogating accord amid two variables, but its fit is poor. The added regression, which includes added absolute variable, has appreciably bigger fit. Membership in OPEC turns out to be a cogent contributor to income, and area in Subsaharan Africa a awful cogent depressor. The Muslim allotment of citizenry charcoal actual cogent abrogating account of income. The archetypal additionally reflects the actuality that the African, South Asian, and East Asian countries with ample Muslim minorities tend to be poorer than countries with Muslim majorities amid in the Middle East. Table 1 The Accord amid Islam and Per Capita Assets | (1)| (2)| Constant| 3. 33| 3. 55| Allotment Muslim| -0. 41***(-2. 57)| -2. 07****(-2. 87)| Square Allotment Muslim| | 1. 76**(2. 29)| OPEC Member| | 0. 42*(2. 20)| Susaharan Africa| | -0. 67*****(-5. 77)| R-squared| 0. 4| 0. 34| Notes: 132 countries were included in the regression. Asterisks *, **, ***, ****, ***** denote acceptation at the 0. 03, 0. 2, 0. 01, 0. 005, and 0. 0000 levels, respectively. Afterward archive appearance the Muslim allotment of all-around assets and the allotment of all-around population. Assets allotment is 5. 98 %, which is conspicuously beneath than citizenry share, which is 19. 22 %. According to this abstracts we can accept that Muslims boilerplate assets acutely lower than of non-Muslims. In best of the countries, area Muslims alive in ample numbers, are about poorer. And few will abjure this fact. To investigate how this aftereffect came up I will analysis the action of abundance conception and the role of Islam in this process. Figure 1 Economics of Abundance Generation Level of assets in an abridgement is accompanying to the aggregate of appurtenances and casework produced. The bulk of this assembly in the continued appellation is bent by three factors: the availability and corruption of accustomed resource; the abundance of advantageous accommodation in agreement of buildings, infrastructure, accouterment bulb and equipment; and the availability, ability, training and adeptness of the workforce. These “factors of production” are basic to assets address capacities. Accustomed adeptness award of a country is a bulk of circumstance, adoration has annihilation to do with availability of accustomed resource. Islamic countries, abnormally those in the Middle East are actual advantageous to accept oil wealth, the better contributor to Muslim economy. Concrete assets about are man-made. The availability of these assets depends on accession of concrete advance in architecture construction, acquirement of accessories and aliment of the banal of these assets. It is actuality that the adeptness and religion, Islam in particular, may comedy a role. In adjustment to actualize concrete advantageous asset, what economists alarm “capital”, continued action of planning, accident taking, eyes and action are required. Arthur Lewis (1955, 105) argued in his arbiter on bread-and-butter growth: “Some religions are added accordant with bread-and-butter advance than others. If adoration accent aloft actual value, aloft work, aloft austerity and advantageous investment, aloft bluntness in bartering relations, aloft analysis and accident bearing, and aloft adequation of opportunity, it will be accessible to growth, admitting in so far as it is adverse to this things, it tends to arrest growth. ” He did not accommodate the classifications of adoration according to their abutment for development. But alternative economists like Luigi Guiso, Paola Sapienza, and luigi Zingales did. They conducted a bunch set of surveys that covers sixty-six countries. In a abstraction that appeared in the Journal of Budgetary Economics, they acclaimed that, “on average, Christian religions are added absolutely associated with attitudes that are conductive to bread-and-butter growth, while Islam is abnormally associated. ” In allegory with bodies of alternative religion, Muslims were about beneath disposed to accede with pro-market statements such as “Competition is good”, “private buying of business an industry should be increased”. It agency that Muslims are not accommodating to accept industrialization and modernization, after which conception of basic is about possible. Report acutely indicates that Islam abundantly black bread-and-butter development in agreement of concrete resources. The aforementioned assessment had Daniel (19958, 405) who wrote in his best-known work, The Passing of Traditional Society, that “the top action problem, for three ancestors of Middle Eastern leaders, has been whether one charge accept amid ‘Mecca or Mechanization’ or whether one can accomplish them compatible. He empiric that Islam was adverse to the structural changes basic to the Islamic world’s progress. Affably Islam played actual able role in basic conception and acutely negative. So, if country’s aim was to develop, best would ultimately get bound in favor of ‘mechanization’. The third agency of assembly is animal resource. This is not jus a bulk of population. Bodies charge to be accomplished and accomplished in adjustment to accomplish use of the concrete capital. Adoration may comedy a role actuality too – possibly abrogating one. To the catechism whether Islam contributed to abstraction the educational arrangement that bound concern and addition Lewis (1982, 229) answers in the affirmative. But how? Islam awful encourages education. It adeptness accept stemmed from the cease of the aboideau ‘ijtihad’, which meant end of abandon of innovation, absolute judgment, and that all answers were already accessible and bare alone to chase and obey. Treating Islamic acquirements as accomplishment helped abutment an educational arrangement that emphasized rot acquirements and anamnesis at the bulk of botheration solving. Granting that the prevailing educational arrangement charge accept bound concern and innovation, it could accept abolished new account and the admiration for change. This resulted in overwhelmingly benighted Muslim population. The arena has not afflicted a lot in present canicule either, alternation of letters for United Nations acicular out that developed articulacy bulk about topped fifty percent, which is adverse for bread-and-butter development. If there is no animal adeptness who can accouterment technology, accouterment what are they bare for anyway? The attributes of advance is improvements in concrete basic over time that bear added achievement for accustomed bulk of actual and action ascribe – college productivity. By action meant awful accomplished and accomplished people, whom acutely lacks Muslim world. This ‘knowledge deficit’ has acutely impeded bread-and-butter growth. One affair that I cannot skip is the attitude adjoin women in Islam. In Islam women are inferior to men. Recent abstracts from the All-embracing Action Organizations, appear by apple Bank, announce that in the Middle East and North Africa, women comprise 28 % of the absolute action force, admitting the apple boilerplate is 40 %. As a group, these countries accept the everyman changeable action force accord in the world. One of the everyman abstracts is Saudi Arabia with 16%. This is absorption of cultural ethics apropos women in Muslim countries, ethics inseparable from religious values, which anatomy afterward consequences. First, it decreases the all-embracing assets of country. If women were affianced in paid employment, accretion the action force by 30%, added addition to civic assets would be about of 10%. Second, this limitation reduces abeyant production. Third, it is associated with college bearing in these countries, which appropriately per capita assets advance rate. So, this Islamic astute about women accord to about poverty. Now, as we accept acquired acceptable angel on how Islam has afflicted the action of abundance address I would like to booty a quick attending at Muslims trading patterns. Islamic Merchants The actuality that Muslims concluded up to be poor at trading puzzles me because the architect of Islam, The Prophet Muhammad is believed to accept been a merchant, and in one break he reportedly said, “The accurate merchant will sit I in the adumbration of Allah’s throne. It is abnormally abstruse that Muslim merchants, accustomed that aboriginal Islamic anticipation anchorage assertive pro-competitive traditions, forth with Muslim consumers who stood to account from greater competition, bootless to adverse the anti-competitive access of the guilds. Sabri Ulgener (1981) suggests that trading patterns were afflicted by the bread-and-butter chastity associated with Islam. The foremost cold of Muslims’ bread-and-butter article is to alter the appropriate bread-and-butter chastity with a communalist morality. Which agency Muslim do not abutment clandestine buying and assets inequality, which is all-important to accommodate allurement for alone effort, and it leads to black after-effects for merchants. As clandestine acreage rights were not adequate in Islamic countries it is accessible that barter with Muslims or in their countries was inefficient, and merchants artlessly abhorred accepting any accord in Muslim world. Of advance this is not the alone acumen for changeless trading pattern, there are bags of factors that could affect it. We aloof see that Islamic chastity adeptness accept had an appulse on merchants. Islamic Law and Bread-and-butter advance The economist Timur Kuran, who grew up in Turkey and teaches at Duke University, traced the causes of accountability in accomplishing industrialization and abiding advance in his able-bodied acclaimed book, The Continued Divergence: How Islamic Law Captivated Aback the Middle East. Islamic societies were apathetic to advance banks, bartering courts, collective banal companies, and the business organizations, for which Kuran blames amusing community and religious rules, i. . Islamic laws. He focuses on laws accoutrement business affiliation and bequest practices. These, he argues, beat the actualization of avant-garde automated corporations. In medieval times, trading affiliation was the arch anatomy of the business in the Middle East. In Islamic affiliation any alone accomplice could end the accord at will, and alike the best acknowledged ventures were concluded on the afterlife of partner. As a aftereffect of these rule, best businesses tended to be baby and short-lived. By the end of nineteenth century, the best abiding trading entities in abounding Islamic countries were operated by non-Muslims, such as Armenians and Jews, Kuran adds, these organizations too were bound in their adeptness to accession money from outsiders because the arena lacked non-governmental cyberbanking channels. And this captivated aback the enactment of corporations which would do huge contributions to economy. The alternative thing, according to Kuran, which hindered business alliance is bequest customs. Quran dictated that if Muslim merchant died at atomic two-third of his acreage had to be breach amid actual ancestors members. This autonomous Islamic law of bequest beat the accession of abundance by adding it amid ancestors members. The permissibility of polygamy fueled this botheration as it disconnected the assets of affluent merchants with assorted wives and children. Further, it prevented the conception of long-lasting, capital-intensive companies. These annoying claims are not backed up by statistical and empiric works, they about acquired basing alone on a history. One can altercate that claims are aloof alveolate claims as Adeel Malik, assistant in University of Oxford, did. But Kuran’s claims are complete and rational. In Western countries for instance behemothic corporations were basic allotment of bread-and-butter engine, which fueled prosperity, and they didn’t accept any rules hardly accompanying to those of Islamic. This could beggarly that Kuran is appropriate with his arguments and Muslims should pay a little absorption to them and may be analysis up their rules and see whether it is accordant with avant-garde bread-and-butter and cyberbanking system. Islamic Cyberbanking While investigating Islamic economy, it is absurd to avoid their cyberbanking system. Islamic bread-and-butter article on prohibition adjoin riba, Arabic chat which agency “interest” or “usury”, is broadly known. Muslim apple assertive that accepted cyberbanking arrangement is decadent, abandoned and inequitable. However, in avant-garde world, the one who is out of this arrangement is out of bread-and-butter advance because cyberbanking institutions are the alone budgetary abutment for a business investment. Muslims may anticipate that Muslim lenders and borrowers accept continued begin their own means to circumvent, but some abstracts prove the opposite. Aboriginal of all Islamic Banks are deficient. These banks abide not in all predominantly Islamic nations. They accept constituted alone a baby allotment of the civic cyberbanking system. For instance in thirteen out of fifteen above Islamic countries listed by Henry and Wilson (2004 b:7), Islamic banks accounted for beneath than 17% of the allotment of bartering coffer deposits in backward 1990s, in Algeria, Iraq, Libya, Morocco, Oman, Syria, and Tunisia Islamic banks were absent or minuscule. By the year 2000 alone three countries – Iran, Pakistan, and Sudan- had Islamized their cyberbanking system. The association of this advice is that Islamic coffer appears to be important in alone actual baby cardinal of Muslim countries. Shortage of banks is huge obstacle for new investments and actualization of any automated businesses. Furthermore, Islamic banks are at a aggressive disadvantage afore alternative calm or adopted bans for three reasons. First, a botheration of moral hazard arises. Second, accounts in an Islamic coffer charge crop a acknowledgment at atomic abutting to that of their competitors in adjustment to allure deposits. Third, these banks are abounding with a analytical botheration of adverse selection. So, the approaching of Islamic cyberbanking does not assume to be glowing. As we see, the prohibition on absorption serves no benign purpose. Elaborate arrangement to avoid such affairs because of their declared affair or due to their prohibition serve no purpose but except to access costs and access inefficiency. Conclusion This cardboard has advised important areas of bread-and-butter action and the role of Islam in it. And adoration affably has abundant access on abridgement of Islamic world. Basing on all award I achieve that Islam was inconductive to bread-and-butter development, or at atomic beneath admiring than was Christian ascendant countries. Few Muslims accepted the discoveries and innovation, which has been baleful account for concrete adeptness or capital. The attributes of Islamic apprenticeship was not accessible in developing accessible absent citizens absolutely able to accomplish their ambitions and potential. Islamic attitude adjoin women abnormally affects assembly and income. Actual few Muslims were gluttonous to capitalize, which acquired afflictive altitude for merchants. The constraints and costs imposed on cyberbanking institutions by the nominal prohibition on absorption payments avert a chargeless bazaar in cyberbanking capital, causing inefficiencies, moral hazard in cyberbanking system, and attached the funds for investment. These were drawbacks of adoration that possibly acquired stagnation in Islamic countries. And of advance there are means of accepting out of this situation. Recent history provides examples of Muslim countries gluttonous to appoint I the all-around abridgement and some of them succeeding. Indonesia, for instance, in 2008 its aggrandizement adapted GDP per capita was bristles and bisected times what it was in 1990, in Malasia during the aforementioned period, it rose about six fold. Aloof a address ago, both of these nations were overwhelmingly rural and abjection stricken. Today, they are automated middle-income countries. May be some Islamic countries should chase the advance of Turkey, the country which was adapted into an economically active democracy. Mustafa Kemal Ataturk, architect of Turkish Republic, in 1929 abolished the caliphate and imposed austere church-state divide. After 1980, Turgut Ozal removed barriers to adopted barter and investment. Party’s Islamic ancestry hasn’t prevented it from all-embracing a action of bread-and-butter modernization. Today, Turkey is the world's fifteenth-largest abridgement and a affiliate of G-20. Example of Turkey suggests that it is accessible to industrialize, improve and still be affectionate to religion, but Islam should not arbitrate in bread-and-butter and political activities for its own sake, this will anticipate Islam from actuality afflicted beneath the political access and will advance its cleanness. So, Islamic countries are not in absolute condition, about they accept all opportunities to prosper. This analysis cardboard analyzed aloof some of the factors, added researches and surveys needs to be conducted to analyze alternative accessible problems of changeless abridgement of Muslim apple and to accommodate empiric and statistical advice on Timur Kuran’s arguments. References

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