Moscow State Institute of International Relations (University) of the Ministry of Foreign Affairs of the Russian Federation. 76, Vernadskogo Prosp., Moscow, 119454, Russian Federation.
O. Solntsev (OSolntsev@forecast.ru),
Center for Macroeconomic Analysis and Short-term Forecasting (CMASF). 47, Nakhimovskii Prosp., Moscow, 117418, Russian Federation.
I. Goloshchapova (IGoloshchapova@forecast.ru.),
Lomonosov Moscow State University. 1, bild. 46, Leninskie Gory, Moscow, 119234, Russian Federation;
Center for Macroeconomic Analysis and Short-term Forecasting (CMASF). 47, Nakhimovskii Prosp., Moscow, 117418, Russian Federation
The paper empirically assesses the interaction between resource dependence and financial development. The authors base their analysis on the ordinary and partial correlations controlling for the quality of governance and GDP per capita. The correlations are computed in different frameworks: (i) for a vast sample of countries, (ii) for a sample of countries specializing in exports of mineral resources. The research also involves individual and aggregated measures of financial development. Overall, it is found out that negative correlations between resource dependence and financial development prevail. These linkages are particularly evident in the case of indicators related to the financial intermediaries, while they do not appear robust regarding the financial markets. The empirical results are consistent with the literature which confirms the fragility and lack of competition in the banking systems of resource-rich economies. On the conceptual level, the interest group theory proposed by Rajan and Zingales (2003) underpins the study’s findings. According to it, major firms of the extractive sector do not exhibit much interest in promoting the nation’s financial development. The point is that since they mostly rely on natural resources’ rents and enjoy access to foreign capital markets, if necessary, thereby they have limited need for local credit facilities. At the same time, smaller firms in the non-tradable sectors face credit rationing. As a result, domestic financial institutions are undercapitalized and fragile. More intense political competition in such countries can partly mitigate the negative linkage between resource dependence and financial development, since it entails better legal enforcement and undermines the political influence of incumbents from the extractive sector. Also, measures aimed at promoting financial markets development as well as competition and stability in the banking system are necessary to further loosen this negative linkage.
financial development, resource dependence, financial intermediation, correlation analysis
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