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Financial Development, Diversification, and Resource Curse in GCC

In: Banking in the GCC

Author

Listed:
  • Abderazak Bakhouche

    (Higher Colleges of Technology)

Abstract

This chapter examines the nexus between financialDiversification development and economic diversification in GCC countries from 1995 to 2021, with a focus on reducing resource dependency. The analysis considers the Financial Development Index (FDI) and its components—financial institutions and financial markets—and their sub-dimensions of depth, access, and efficiency. Results from IV-2SLS regressions reveal that financial development significantly promotes diversification by reducing natural resource rents. Financial institutions, particularly in terms of their access and depth, emerge as the most effective channels, facilitating resource reallocation to non-resource sectors. However, financial market efficiency remains positively associated with resource dependence, implying greater market sensitivity to hydrocarbon revenues. While GDP growth, inflation, and savings point to structural impediments to reducing resource dependence, governance and regulatory quality are significant enablers of diversification. The findings highlight the dual role of financial systems and institutional reforms in addressing the resource curse and enhancing sustainable economic transformation.

Suggested Citation

  • Abderazak Bakhouche, 2026. "Financial Development, Diversification, and Resource Curse in GCC," Palgrave Macmillan Studies in Banking and Financial Institutions, in: Banking in the GCC, chapter 3, pages 41-69, Palgrave Macmillan.
    • Handle: RePEc:pal:pmschp:978-3-032-21737-0_3
    DOI: 10.1007/978-3-032-21737-0_3
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