**17** . See in particular Rodrik (1991) and Serven and Solimano (1993). **18** . See De Haan and Siermann (1996), Prszeworski and Limongi (1993), Prszeworski et al. (2000). **19** . See in particular Rodrik (1991), Alesina and Perotti (1996), Le (2004), Brunetti and Weder (1994). In the growth context see also Alesina et al. (1996), Svensson (1998), Olson et al. (2000). **20** . See for example Greene and Villanueva (1991), Blejer and Khan (1984), and Serven (1997). **21** . See Shafik (1992) on _Egypt_ ; Schmidt and Muller (1992) on _Morocco,_ as well as Bisat, El-Erian, ElGamal and Mongelli (1996) on MENA.

**22** . See in particular Shafik (1992), and Agenor and Montiel (1999) for a discussion and additional references.

**23** . See for example, McKinnon (1973) and Shaw (1973).

**24** . For the positive spillover from trade openness on governance quality, see Berg and Krueger (2003), Islam and Montenegro (2002) and Wei (2000). For the role of domestic competition, see Ades and Di Tella (1999), Djankov and others (2001), and the World Bank (2002).

> **25** See Lucas (1988), Psacharopoulos (1988), and Mankiw, Romer and Weil (1992).

> **26** See in particular Acemoglu and Shimer (1999).

> **27** See Bresnahan, Brynjolfsson and Hitt (2002).

**28** . See the World Bank (2005).

> **29** See Nabli and Véganzonès -Varoudakis (2004).

> **30** See Aizenmann and Marion (1999), and Everhart and Sumlinski (2001).

> **31** Aysan (2005) points out that this variable captures the “rentier effect”.  He notes that “it is easier for the elite to control and capture the rents from ‘point source’ resources.  Resource rents are generally high in oil production.  Around 80 percent of oil income is considered to be resource rent (Gylfason, 2001), while such rents are much lower for other types of products in industry or in agriculture.  A small work force is required to extract oil resources.  Most of the time, oil is extracted by foreign firms with sophisticated technical skills (Isham et al, 2002).  As a result, the ruling elite can exclude the majority of the population in extracting oil reserves.  In other words, there exists no incentive on the part of the elite to incorporate the society into increasing aggregate production.  Given the lack of economic preconditions, the citizens cannot generate pressure for increased literacy and political influence.  This lack of political influence further feeds the vicious cycle by not effectively and peacefully revealing public interest and preferences.”

> **32** Sources of data are as follows: the private investment series have been processed from various national and international sources (International Finance Corporation ( _IFC_ ), World Development Indicators ( _WDI_ ), Life Data Base ( _LDB_ ), see section 4.1 for more details). The “Administrative Quality” and “Political Stability” indexes use ICRG (1999) data. The components of the “Public Accountability” indicator come from Freedom House (2002). The “Structural Reforms” index uses data from WDI, but the oil export series entering the trade policy indicator comes from the United Nations. In the “Human Capital’ indicator, the numbers of years of schooling are from Barro and Lee (1994) and from Barro (2000a and b), and the life expectancy series is from WDI. All aggregated indicators have been generated after implementing the PCA

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