The Effect of Political Institutions on Performance of Oil Funds: Comparison of Iran, Norway and Saudi Arabia

Abstract

This article has surveyed effect of political institutions on performance of oil funds and seeks to make a meaningful contribution to the literature on the use of oil funds in resource-dependent countries, by proposing that what differences in political institutions, cause differences in performance of oil funds in Iran, Norway and Saudi Arabia. In situations that institutional framework causes maximization of benefits with long-term decisions, the mechanism of oil funds are successful. And in situations that institutional framework causes maximization of benefits with short-term decisions, the mechanism of oil funds are not successful. Institutional framework in full democracies and paternalism authoritarian regimes lead to the long-term decisions, but institutional framework in flawed democracies leads to short-term decisions. It seems that in Iran, motivations implicit in institutional structure push politicians to take short-term decisions instead of long-term decisions, such that politicians are inclined to maximize their own interests and consider short-term period. That has been of the most important factor in failure of Iran's Foreign Currency Reserves Account or National Development Fund.

Keywords

• oil fund
• political institutions
• iran
• norway and saudi arabia