State benevolence and economic growth from an Islamic perspective : an empirical study of OIC countries

Abstract

This thesis examines whether practicing state benevolence towards citizens, foreign countries and the environment by Islamic countries, has negative repercussions for the latter countries’ economic growth. Accordingly, the thesis has three objectives; (1) to examine the impact of welfare state on economic growth, and the moderating effect of government effectiveness, (2) to assess the impact of foreign aid donations on the foreign aid donor countries' economic growth, and the moderating roles of government effectiveness and trade, and (3) to estimate the impact of government environmental protection on economic growth, and the moderating roles of government effectiveness and labour productivity, with respect to OIC member countries. The Least Squares Dummy Variable Corrected technique is employed to analyse data of twenty-three OIC member countries including Afghanistan, Albania, Azerbaijan, Bahrain, Bangladesh, Burkina Faso, Egypt, Iran, Jordan, Kazakhstan, Kuwait, Kyrgyzstan, Lebanon, Maldives, Mozambique, Oman, Palestine, Qatar, Somalia, Tunisia, Turkey, Uganda and Uzbekistan, spanning 2005 to 2022. The results indicate that welfare state has a significant negative impact on economic growth. This finding implies increasing expenditure for practicing state benevolence towards citizens, reduces economic growth. Also, the results show that the impact of foreign aid donations on the donor countries’ economic growth is insignificant, implying increasing expenditure for providing foreign aid, does not affect the donor countries’ economic growth in any way. Similarly, environmental protection is found to have no significant impact on economic growth. Further, the results indicate that the moderating effect of government effectiveness in the three relationships, and the moderating effect of labour productivity are not significant. This means high levels of government effectiveness and labour productivity in the countries studied, do not change the impacts existing in the respective relationships. Furthermore, the moderating effect of trade is significantly positive, implying the variable moderates to enhance the impact in the relationship between foreign aid donations and the donor countries’ economic growth. This thesis recommends to policy makers to undertake reforms in the social welfare sector, in order to convert the negative impact of welfare state into a positive one. With such reforms in place, the studied countries can practice the Islamic moral obligation of state benevolence, without harbouring any fear that their economic growth would be negatively impacted.