The Effect of Institutions on Economic Growth in Muslim Countries

For the last century, Muslim countries have been generally recalled by political and economic instabilities. They have been facing important problems such as poverty, internal turmoil, social disorders, lack of democracy, inadequate health services and low education level that obstruct their economic developments. These problems in general are addressed to the low level of governance and spoiled institutional structures of markets and political area. According to the good governance approach, efficient markets attract private investors which will drive economic development and growth. For a market to be efficient, various institutions must be established and markets must operate within that framework. This work examines the relationship between the institutions and economic growth in Muslim countries to address this problem. The problem statement is: Is there a significant relationship between the institutions and economic growth in Muslim countries? The D-8 Organization for Economic Cooperation Countries are used as a proxy of Muslim countries. World Bank World Governance Indicators are used as a proxy for the levels of institutions and UNDP Human Development Index is used to proxy human capital. Results show that there exists a significant relationship between the institutions and economic growth in Muslim countries.