IDEAS home Printed from https://ideas.repec.org/a/gam/jecomi/v13y2025i10p288-d1763679.html
   My bibliography  Save this article

Public Debt, Oil Rent, and Financial Development in MENA Countries: A Fractional Response Model Approach (FRM)

Author

Listed:
  • Mashael Fahad Alkhurayji

    (The Department of Economics, College of Business Administration, King Saud University, Riyadh 11451, Saudi Arabia)

  • Hamed Mohammed Alhoshan

    (The Department of Economics, College of Business Administration, King Saud University, Riyadh 11451, Saudi Arabia)

Abstract

The rapid accumulation of public debt raises global concern over its implications for financial markets. This study examines the effect of domestic public debt on financial development in Middle East and North Africa (MENA) countries, a region marked by sharp heterogeneity in institutions, debt dynamics, and oil dependence, using annual panel data for 16 countries over the period (2000–2020). Our analysis employs a fractional response model (FRM), which accounts for the bounded nature of the dependent variable, corrects for heteroskedasticity, and incorporates country fixed effects. The findings reveal a significant negative effect of domestic public debt on financial development, consistent with the lazy banks and crowding-out hypotheses. This adverse relationship persists across different income groups and debt percentiles, with modest attenuation at higher debt levels. Oil rents are also found to exert a robust negative effect, highlighting the structural vulnerabilities associated with oil dependence. These results emphasize the importance of debt management, fiscal frameworks that account for commodity cycles, and policies to reduce the sovereign–bank nexus in fostering sustainable financial development in the region.

Suggested Citation

  • Mashael Fahad Alkhurayji & Hamed Mohammed Alhoshan, 2025. "Public Debt, Oil Rent, and Financial Development in MENA Countries: A Fractional Response Model Approach (FRM)," Economies, MDPI, vol. 13(10), pages 1-29, October.
    • Handle: RePEc:gam:jecomi:v:13:y:2025:i:10:p:288-:d:1763679
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2227-7099/13/10/288/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2227-7099/13/10/288/
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jecomi:v:13:y:2025:i:10:p:288-:d:1763679. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.