6th International Young Scientist Congress (IYSC-2020) will be Postponed to 8th and 9th May 2021 Due to COVID-19. 10th International Science Congress (ISC-2020).  International E-publication: Publish Projects, Dissertation, Theses, Books, Souvenir, Conference Proceeding with ISBN.  International E-Bulletin: Information/News regarding: Academics and Research

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

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)


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.


  1. Rodriguez F. and Sachs J.D., Why do resource-abundant economies grow more slowly? A new explanation and an application to Venezuela, Journal of Economic Growth, , 277–303 (1999)
  2. Robinson J.A., Torvik R. and Verdier T., Political foundations of the resource curse, Journal of Development Economics, 79, 447–468 (2006)
  3. King R.G. and Levine R., Finance and Growth: Schumpeter Might Be Right, The Quarterly Journal of Economics, 108(3), 717-737 (1993)
  4. Van Wijnbergen S., The "Dutch disease": a disease after all? Economic Journal, 94, 41–55 (1984)
  5. Matsen E. and Torvik R., Optimal Dutch disease, Journal of Development Economics, 78, 494–515 (2005)
  6. Sachs J.D. and Warner A.M., Natural Resources and Economic Development: The Curse of Natural Resources, European Economic Review, 45, 827-838 (2001)
  7. Sala-i-Martin X. and Aaubramanian A., Addressing the Natural Resource Curse: An Illustration from Nigeria,NBER Working Paper, 9804, 1-46 (2003)
  8. Ross M., Political Economy of Resource Curse, World politics, 51(2), 297-322 (2001)
  9. Baland J. and Francois P., Rent Seeking and Resource Booms, Journal of Development Economics, 61(2), 527-542 (2000)
  10. Mehrara M., Abrishami H. and Zamanzade H., Resource Curse or Institutions: Case study of Oil exporting Countries, IranianEconomic Research, 10(3), 205-233 (2010)
  11. Gylfason T., Herbertsson T.T. and Zoega G., A mixed blessing natural resources and economic growth, Macroeconomic Dynamics, , 204–225 (1999)
  12. Rasti M., Comparative Analysis of Different Aspect of Development (Economic, Trade, Financial and human) in OPEC Countries, Business Studies, new (39), 65-77 (2009)
  13. Malekosadati S.S., The effect of good governance (based on World Bank indicators) on economic growth in selected countries, University of Allame Tabatabai. Iran, Tehran (2007)
  14. Yuxiang K. and Chen Z., Resource Abundance and Financial Development: Evidence from China, Resource Policy, 36, 72-79 (2010)
  15. Mehrara, M., andkeykhah, A., Institutions, Oil and Economic Growth in Oil Dependant Countries over 1975-2005: Panel Co integration Method, IranianJournal of Quantitative Economics, 5(4), 55-79 (2008)
  16. Gylfason T. and Zoega G., Natural Resources and Economic Growth: The Role of Investmen, CEPR Discussion Papers (2001)
  17. Rahmani T. and Golestani M., The Analysis of Oil Resource Curseand Rent seeking on Income Distribution in Selected Oil Countries, Iranian Journal of Economic Research, 44(89), 57-86 (2009)
  18. Gylfason T., Natural resources, education, and economic development, European Economic Review, 45, 847–859 (2001)
  19. Auty R., Resource Abundance and Economic Development. UNU/WIDER Studies in Development Economics, Oxford University press (2001)
  20. Clague C., Keefer P., Knack S. and Olson M., Property and Contract Rights in Autocracies and Democracies, Journal of Economic Growth, , 243-276 (1996)
  21. Olson M., Dictatorship, Democracy and Development. American Political Science Review, 87(3), 567-576 (1993)
  22. Grigorian D. and Martinez A., Industrial Growth and quality of institutions: What do (Transition) economies have to gain from the rule of law? World Bank Policy Research, Working Paper no., 2475, 1-20 (2000)
  23. Laporta R., Lopez-de-silones F., Shleifer A. and Vishny R., Legal Determinant ofExternal Finance, The Journal of Finance, , 1131-1150 (1997)
  24. Merryman J.H., The Civil Law Tradition: An Introduction to the Legal Systems of Western Europe and Latin America, Stanford University Press, Stanford, CA (1985)
  25. North D., and Weingast B.R., Constitutions and Commitment: the Evolution of Institutions Governing Public Choice in Seventeenth Century England, Journal of Economic History, 49, 803–832 (1989)
  26. Mahoney G., The Common Law and Economic Growth: Hayek Might Be Right, Journal of Legal Studies, 30 (2), 503–525 (2001)
  27. Acemoglu D., Johnson S. and Robinson J., The Colonial Origins of Comparative Development: An Empirical Investigation, American Economic Review, 91(3), 1369-1401 (2001)
  28. Beck T., Demirguc-kunt A. and Levine R., Law, Endowment and Finance, Journal of Financial Economics, 70(2), 137-181 (2003)
  29. Beck T., Finance and Oil: Is there a Resource Curse in Financial Development?, CEPR discussion paper (2010)
  30. Hodler R. and Bhattacharyya S., Do Natural Resource Revenue Hinder Financial Development?, The Role of Political Institutions, Oxcarre Research Paper (2010)
  31. Girma S., and Shortland A., The Political Economy of Financial Development, Oxford Economic Papers, 60(4), 567-596 (2008)
  32. Huang Y., Political Institutions and Financial Development: An Empirical Study, World Development, 38(12), 1667-1677 (2010)
  33. Yung, B., Dose democracy Foster Financial Development? An Empirical Analysis. Economic Letters, 112(3), 262-265 (2011)
  34. Komijani A., Motavaseli M., and Poorrostami N., Theoretical Framework of Expressing Effective Factors on Financial Development (with Emphasis on Williamson Model). Iranian Journal of Economic Researches and policies, 17(50), 5-29 (2009)
  35. Samadi, A.H., Social Capital and Financial Development: Iran Economy. Iranian Journal of Economic Research, 44(88), 117-144. (2009)
  36. Barro R.J. and Lee, J. W., International Measures of Schooling Years and Schooling Quality, American Economic Review,86, 21823. (1996)
  37. Bond S., Dynamic Panel Models: A Guide to Micro Data Methods and Practice. Institute for Fiscal Studies, Department of Economics, UCL, CEMMAP (Centre for Microdata Methods and practice) Working Paper No. CWPO9/02.Available online: http://cemmap.ifs.org.uk/ wps/cwp0209.pdf. (2002)
  38. Baltagi B., Econometric Analysis of Panel Data. Fifth Edition. John Wiley & Sons publication(2008)
  39. Arellano M., An Alternative Transformation for Fixed Effects Models withPredetermined Variables, Applied Economics Discussion Paper, nº. 57, University of Oxford, Oxford (1988)
  40. Arellano M. and Bond S., Dynamic Panel Data estimation using DPD98 for GAUSS,Mimeo. Institute for Fiscal Studies, London(1998)
  41. Arellano M. and Bover O. Another look at the instrumental variable estimation of error-components models, Journal of Econometrics, 68, 29-51 (1995)
  42. Blundell R.W. and Bond S.R., Initial conditions and moment restrictions in dynamic panel data models, Journal of Econometrics, 87, 115–143 (1998)
  43. Roodman D., How To Do xtabond2: An Introduction to “Difference” and “System” GMM in Stata, Center for Global Development Working Paper No. 103 (2006)
  44. Roodman D., A Short Note on the Theme of Too Many Instruments. Center for Global Development Working Paper No., 125 (2007)