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
1. Mamonov M., Pestova A., Pankova V., Akhmetov R., Solntsev O. Dolgosrochnoe prognozirovanie razmera i struktury finansovogo sektora Rossii [Long-term forecasting of the size and structure of the Russian financial sector]. Seriya dokladov ob ekonomicheskikh issledovaniyakh Banka Rossii [Series of reports on economic studies of the Bank of Russia]. No. 20, July 2017.
2. Mamonov M., Pestova A., Pankova V., Akhmetov R., Solntsev O. Finansovyi sektor, ekonomicheskii rost i makroekonomicheskaya stabil’nost’ [Financial sector, economic growth and macroeconomic stability]. Seriya dokladov ob ekonomicheskikh issledovaniyakh Banka Rossii [Series of reports on economic studies of the Bank of Russia]. No. 21, July 2017.
3. Horvath R., Horvatova E., Siranova M. Financial Development, Rule of Law and Wealth Inequality: Bayesian Model Averaging Evidence. BOFIT Discussion Paper 12/2017, 21.08.2017, pp. 1-28.
4. Guidelines for the development of the Russian financial market in 2016–2018. Moscow, Bank of Russia, 2016. 75 p.
5. Rajan R., Zingales L. The Great Reversals: the Politics of Financial Development in the Twentieth Century. Journal of Financial Economics, 2003, vol. 69, pp. 5-50. DOI:10.1016/S0304-405X(03)00125-9.
6. Kurronen S. Financial Sector in Resource-dependent Economies. Emerging Markets Review, 2015, vol. 23, pp. 208-229. DOI:10.1016/j.ememar.2015.04.010.
7. Huang Y. Political Institutions and Financial Development: an Empirical Study. World Development, 2010, vol. 38, pp. 1667-1677. DOI:10.1016/j.worlddev.2010.04.001.
8. Bhattacharyya S., Hodler R. Do Natural Resource Revenues Hinder Financial Development? The Role of Political Institutions. World Development, 2014, vol. 57, pp. 101-113. DOI:10.1016/j.worlddev.2013.12.003.
10. Mlachila M., Ouedraogo R. Financial Development Resource Curse in Resource-rich Countries: the Role of Commodity Price Shocks. IMF Working paper 17/163, 2017. Available at: https://www.imf.org/en/Publications/WP/Issues/2017/07/19/Financial-Resource-Curse-in-Resource-Rich-Countries-44938 (accessed 20.11.2017).
11. Beck T., Poelhekke S. Follow the Money: Does the Financial Sector Intermediate Natural Resource Windfalls? DNB Working Paper no. 545, February 2017. Available at: https://www.dnb.nl/en/binaries/Working%20Paper%20No.%20545_tcm47-353012.pdf (accessed 20.11.2017).
12. Huang Y. What Determines Financial Development? Discussion Paper 05/580. Bristol (UK), University of Bristol, 2005. Available at: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.148.3105&rep=rep1&type=pdf (accessed 20.11.2017).
13. Chakraborty S., Ray T. The Development and Structure of Financial Systems. Journal of Economic Dynamics and Control, 2007, vol. 31, no. 9, pp. 2920-2956.
14. Chow W.W., Fung M.K. Financial Development and Growth: a Clustering and Causality Analysis. The Journal of International Trade & Economic Development, 2013, vol. 22. no. 3, pp. 430-453.
15. Essid Z., Boujelbene Y., Plihon D. Benchmarking Financial Systems in Emerging and/or Developing Countries: Financial Development Index. Available at: https://mpra.ub.uni-muenchen.de/56287/2/MPRA_paper_56287.pdf (accessed 20.11.2017).
16. Yuxiang K., Chen Z. Resource Abundance and Financial Development: Evidence from China. Resources Policy, 2011, vol. 36(1), pp. 72-79. DOI:10.1016/j.resourpol.2010.05.002.
17. Stolbov M., Goloshchapova I., Solntsev O., Tsepilova E., Akhmetov R., Pankova V. Sopostavlenie modeli rossiiskogo finansovogo sektora s modelyami finansovykh sektorov drugikh stran [Comparison of the Russian and Other Countries’ Financial Sector Models]. Bank Rossii, № 7, iyul’ 2017. Available at: https://www.cbr.ru/Content/Document/File/16746/02.pdf (accessed 20.11.2017).
18. Čihak M., Demirguc-Kunt A., Feyen E., Levine R. Benchmarking Financial Systems Around the World. World Bank Policy Research Working Paper 6175. Washington, World Bank, 2012, pp. 1-56.
19. Sahay R., Čihak M., N’Diaye P., Barajas A., Bi R., Ayala D., Gao Y., Kyobe A., Nguyen L., Saborowski C., Svirydzenka K., Yousefi S.R. Rethinking Financial Deepening: Stability and Growth in Emerging Markets. IMF Staff Discussion Note SD. 2015. Available at: https://www.imf.org/external/pubs/ft/sdn/2015/sdn1508.pdf (accessed 20.11.2017).
20. Svirydzenka K. Introducing a New Broad-based Index of Financial Development. IMF Working Paper WP/16/5. Available at: https://www.imf.org/external/pubs/ft/wp/2016/wp1605.pdf (accessed 20.11.2017).
21. Nili M., Rastad M. Addressing the Growth Failure of the Oil Economies: the Role of Financial Development. Quarterly Review of Economics and Finance, vol. 46 (5), 2007, pp. 726-740. DOI:10.1016/j.qref.2006.08.007.
22. Hattendorff С. Natural Resources, Export Concentration and Financial Development. Economics Discussion Paper no. 2014/34, Berlin, Frei University, 2014. Available at: http://www.diss.fu-berlin.de/docs/servlets/MCRFileNodeServlet/FUDOCS_derivate_000000004192/discpaper2014_34.pdf (accessed 20.11.2017).
23. Kaufmann D., Kraay A., Mastruzzi M. Worldwide Governance Indicators: Methodology and Analytical Issues. World Bank Policy Research Paper, September 2010. Available at: http://info.worldbank.org/governance/wgi/pdf/wgi.pdf (accessed 20.11.2017).
24. Moradbeigi M., Hook Law S. Growth Volatility and Resource Curse: Does Financial Development Dampen the Oil Shocks? Resources Policy. 2016, vol. 48, pp. 97-103. DOI:10.1016/j.resourpol.2016.02.009.
25. Moradbeigi M., Hook Law S. The Role of Financial Development in the Oil-growth Nexus. Resources Policy. 2017, vol. 53, pp. 164-172. DOI:10.1016/j.resourpol.2017.06.016.
26. Nwani C., Bassey Orie J. Economic Growth in Oil-exporting Countries: Do Stock Market and Banking Sector Development Matter? Evidence from Nigeria. Gogent Economics and Finance. 2016, vol. 4 (1), pp. 1-11. DOI:10.1080/23322039.2016.1153872.
Registered in system SCIENCE INDEX