The Islamic Commercial Crisis:
Institutional Roots of Economic
Underdevelopment in the Middle East
During the second millennium, the Middle Eastís commerce with Western Europe fell increasingly under European domination. Two factors played critical roles. First, the Islamic inheritance system, by raising the costs of dissolving a partnership following a partnerís death, kept Middle Eastern commercial enterprises small and ephemeral. Second, certain European inheritance systems facilitated large and durable partnerships by reducing the likelihood of premature dissolution. The upshot is that European enterprises grew larger than those of the Islamic world. Moreover, while ever larger enterprises propelled further organizational transformations in Europe, persistently small enterprises inhibited economic modernization in the Middle East.
Journal of Economic History, Vol. 63, No. 2 (June 2003): 417-49.