Investigating the relationship between the political system and the economic institutions with a focus on the Pahlavi period

The main question of this study is: Why is the economic performance of some dictatorships such as Middle East monarchies, better than that of some democracies such as Latin American republics? In this paper, by adopting a descriptive-analytical approach and using historical observations, it has been argued that economic institutions historically influenced by political institutions. Political institutions form the two key components of any political regime, including power transition and power distribution. In this paper, based on historical observations, we show that the concentration of power on the Shah in Pahlavi Iran has led to rentseeking policies. The high concentration of the Shah's power prevented any political competition over efficiency and accountability, and had expanded his interference in the economic and political issues, such as military purchases, bank licensing, and ownership of large economic and industrial enterprises. Therefore, the property rights of economic activists independent of the Shah's power were not legally protected by economic institutions, and the protection or violation of property rights was exercised arbitrarily by the Shah. In contrast, the distribution of power among the ruling group in dictatorships such as Oman, Qatar and other family monarchies in Middle East led to the formation of efficient economic institutions. Because the king's power to deprive other members’ property is limited, and they are able to set up private enterprises to gain benefits. Finally, statistical analysis confirms the results obtained from historical observations and indicate that distribution of power has major role on the formation of economic institutions.