Firms’ access to finance in resource-based countries and the financial resource curse

Using a panel of more than 156 000 firms surveyed in 140 countries over the 2003–2019 period, this paper addresses the issue of the financial resource curse through a new channel that thus far has not been accounted for in the literature, namely, firms' access to finance. To do this, our econometric analysis is based on an original approach combining microeconomic level data on firms' access to finance and macroeconomic level data on countries' level of natural resource rents, with a focus on energy rents (oil, gas and coal). By doing so, we are able to investigate in a more precise and disaggregated way the mechanisms explaining why resource-based countries are associated with less developed financial systems. Using panel regressions, we find significant and robust evidence that firms operating in countries characterized by a high level of natural resource rents suffer from less access to external financing. Moreover, depending on two important transmission channels, namely, the quality of institutions and the extent of supply constraints, we find heterogeneities in the relationship between firms' access to finance and countries' level of natural resource rents. In addition, we show that the countries' level of natural resource rents has a significant and negative correlation with firms' access to finance only for firms that do not operate in the natural resource sector. This provides new evidence of the Dutch disease phenomenon, since the lack of firms' financing can also be an explanation for the atrophy of sectors unrelated to the natural resource sector.