nep-ara New Economics Papers
on Arab World
Issue of 2010‒06‒18
two papers chosen by
Quentin Wodon
World Bank

  1. Domestic borrowing without the rate of interest: gharar and the origins of sukuk By Cizakca, Murat
  2. Trade and Geography in the Economic Origins of Islam: Theory and Evidence By Michalopoulos, Stelios; Naghavi, Alireza; Prarolo, Giovanni

  1. By: Cizakca, Murat
    Abstract: All governments need to borrow from the public. Known as domestic borrowing, this is not an easy process. For Muslim countries, where interest is prohibited, this process becomes extra ordinarily difficult. I will start this article by examining the concept of uncertainty, gharar, in Islam and then move on to the origins of Islamic domestic borrowing, which is referred to in modern parlance as sukuk. The value of modern sukuk issued at the end of 2009 has reached roughly USD 100 billions. While most people think that this is a newly invented instrument, the institutional roots can be traced back for centuries.
    Keywords: gharar; domestic borrowing; public borrowing; sukuk; esham; cash waqfs
    JEL: N00 N25 B25
    Date: 2010–05–03
  2. By: Michalopoulos, Stelios; Naghavi, Alireza; Prarolo, Giovanni
    Abstract: This research examines the economic origins of Islam and uncovers two empirical regularities. First, Muslim countries, virtual countries and ethnic groups, exhibit highly unequal regional agricultural endowments. Second, Muslim adherence is systematically larger along the pre-Islamic trade routes in the Old World. The theory argues that this particular type of geography (i) determined the economic aspects of the religious doctrine upon which Islam was formed, and (ii) shaped its subsequent economic performance. It suggests that the unequal distribution of land endowments conferred differential gains from trade across regions, fostering predatory behavior from the poorly endowed ones. In such an environment it was mutually beneficial to institute a system of income redistribution. However, a higher propensity to save by the rich would exacerbate wealth inequality rendering redistribution unsustainable, leading to the demise of the Islamic unity. Consequently, income inequality had to remain within limits for Islam to persist. This was instituted via restrictions on physical capital accumulation. Such rules rendered the investments on public goods, through religious endowments, increasingly attractive. As a result, capital accumulation remained low and wealth inequality bounded. Geography and trade shaped the set of economically relevant religious principles of Islam affecting its economic trajectory in the preindustrial world.
    Keywords: O10; O13; O16; O17; O18; F10; Z12
    JEL: Z12 O10 F10
    Date: 2010–05–22

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