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Oil Rents, Institutions and Financial Development: Case Study of selected Oil Exporting Countries

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Author Affiliations

  • 1Department of Economics, Ferdowsi University of Mashhad, Mashhad, IRAN
  • 2Young Researchers and Elite Club, Zanjan Branch, Islamic Azad University, Zanjan, IRAN

Res. J. Recent Sci., Volume 2, Issue (12), Pages 100-108, December,2 (2013)

Abstract

Based on the empirical evidence and researches, the majority of oil dependent countries have the low level of financial development. So the aim of this study is to investigate whether the oil rents weakens the financial development in oil dependent economies? In this study, direct and indirect impact of the oil rent on financial development is examined using Generalized Method of Moments (GMM) for 17 selected oil exporting countries, over the period 2002-2010. The result suggests that oil rent has had a negative effect on financial development and has provided the context of the weakening financial markets in two direct and indirect (through institutional quality channel and weakening it) ways. Also the result indicates that there is a positive and significant relationship between institutional quality and financial development. So improving the institutional quality is a necessary and essential condition to enhance financial development.

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