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Financial development curse in resource-rich countries: The role of commodity price shocks

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  • Mlachila, Montfort
  • Ouedraogo, Rasmané

Abstract

Why do commodity-dependent developing countries have typically lower levels of financial development than their peers? The literature has proposed many possible explanations, but there is no consensus. In this paper, we explore whether the shocks to commodity prices can lead to lower financial development. We test the hypothesis on 68 commodity-rich developing countries over the period 1980–2014, and we find strong evidence of the financial development curse through the channel of commodity price shocks. We also show that the impact of these shocks can be mitigated through good quality of governance.

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  • Mlachila, Montfort & Ouedraogo, Rasmané, 2020. "Financial development curse in resource-rich countries: The role of commodity price shocks," The Quarterly Review of Economics and Finance, Elsevier, vol. 76(C), pages 84-96.
    • Handle: RePEc:eee:quaeco:v:76:y:2020:i:c:p:84-96
    DOI: 10.1016/j.qref.2019.04.011
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    More about this item

    Keywords

    Commodity price shocks; Financial development curse; Financial sector development; Governance;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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