Analysis of Interaction between Governance and Development in Oil-Exporting Countries

This research aims to analyze interaction between governance and development in oil- exporting countries. In this regard, the interactions are compared in two groups of countries, namely oil-exporting countries in the Middle East and oil-exporting countries beyond the Middle East. The function of governance has become one of the fundamental issues, and the Middle East countries are particularly important for research because of their geographic location and oil revenues. In this paper, three-stage least squares method is used to estimate the model based on the World Bank data during 1996-2014, and Wald, Kruskal-Wallis, and Least Significant Difference (LSD) tests are used to check the research hypotheses. The results indicate a significant difference in interaction between governance and development among oil-exporting countries in the Middle East and those beyond the Middle East. In both groups of the countries, effect of development on governance was greater than that of the governance on development. Despite the similarity in oil exports, geographic environment (i.e. similarities in culture, religion, and some of customs) affects the interaction between governance and development. As such, paying adequate attention to the development not only improves its indices, but also enhances situation of the governance and hence improves their performance. This is also the case for the governance, but the rate of changes fueled by the development is higher.