The Islamic Commercial Crisis: Institutional Roots of Economic Underdevelopment in the Middle East

During the second millennium, the Middle East's 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 partner's 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.For useful comments on previous drafts, I am indebted to Scott Altman, Murat Çizakça, Avner Greif, Eric Jones, Daniel Klerman, Naomi Lamoreaux, ôevket Pamuk, David Powers, Kenneth Sokoloff, Jan de Vries, Dean Williamson, and three anonymous referees. Excellent research assistance was provided by Hania Abou Al-Shamat, Iva Bozˆović, and Sung Han Tak.