Financial Resource Curse in Resource-Rich Countries

July 19, 2017

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Format: Chicago

Montfort Mlachila, and Rasmané Ouedraogo. Financial Resource Curse in Resource-Rich Countries, (USA: International Monetary Fund, 2017) accessed October 6, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

Why do commodity-dependent developing countries have typically lower levels of financial development than their peers? The literature has proposed many possible explanations, but it typically does not dwell on the deep mechanisms that drive such an outcome. In this paper, we argue that the main cause is the shocks in commodity prices. We test the hypothesis on 68 commodity-rich developing countries between 1980 and 2014, and we find strong evidence of the financial development resource curse through the channel of commodity price shocks, after controlling for other explanations found in the literature. The findings are robust to the different types of commodities, the nature of the shocks, and various indicators of financial development. We also show how the impact of these shocks can be mitigated through good quality of governance.

Subject: Bank credit, Bank deposits, Commodity price shocks, Financial sector development, Natural resources

Keywords: Export concentration, Natural resource, Price shock, Private sector, Shock indices, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/163
Stock No:

WPIEA2017163
ISBN:

9781484310144
ISSN:

1018-5941

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