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The Role of Financial Development in Natural Resource Abundant Economies: Does the Nature of the Resource Matter?

The paper evaluates the role played by financial development in oil vis-�-vis non-oil (mining) economies using a panel data set for the period 1984-2003. A novel two-step, variance corrected system Generalized Method of Moments (GMM) estimator proposed by Windmeijer (2005) is applied to a dynamic panel of 44 developing economies. The data reveals that financial development plays a crucial role in influencing the efficiency of investment, thus economic performance of these economies. However, the potency of financial institutions is highly dependent on whether the economy is an oil or non-oil (mining) producer.

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File URL: http://www.uq.edu.au/economics/mrg/2208.pdf
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Paper provided by School of Economics, University of Queensland, Australia in its series MRG Discussion Paper Series with number 2208.

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Handle: RePEc:qld:uqmrg6:22
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  1. Thorvaldur Gylfason & Gylfi Zoega, 2001. "Natural Resources and Economic Growth: The Role of Investment," EPRU Working Paper Series 01-02, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
  2. Hayakawa, Kazuhiko, 2007. "Small sample bias properties of the system GMM estimator in dynamic panel data models," Economics Letters, Elsevier, vol. 95(1), pages 32-38, April.
  3. Jeremy Greenwood & Boyan Jovanovic, 1989. "Financial Development, Growth, and the Distribution of Income," NBER Working Papers 3189, National Bureau of Economic Research, Inc.
  4. Bond, Stephen Roy & Hoeffler, Anke & Temple, Jonathan, 2001. "GMM Estimation of Empirical Growth Models," CEPR Discussion Papers 3048, C.E.P.R. Discussion Papers.
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  6. Denizer, Cevdet & Iyigun, Murat F. & Owen, Ann L., 2000. "Finance and macroeconomic volatility," Policy Research Working Paper Series 2487, The World Bank.
  7. Benhabib, Jess & Spiegel, Mark M, 2000. "The Role of Financial Development in Growth and Investment," Journal of Economic Growth, Springer, vol. 5(4), pages 341-60, December.
  8. Francesco Caselli & Gerardo Esquivel & Fernando Lefort, 1997. "Reopening the Convergence Debate: A New Look at Cross-Country Growth Empirics," Working Papers Central Bank of Chile 03, Central Bank of Chile.
  9. Michael Graff, 2003. "Financial Development and Economic Growth in Corporatist and Liberal Market Economies," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 39(2), pages 47-69, March.
  10. Manuel Arellano & Stephen Bond, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 277-297.
  11. R Blundell & Steven Bond, . "Initial conditions and moment restrictions in dynamic panel data model," Economics Papers W14&104., Economics Group, Nuffield College, University of Oxford.
  12. Thorsten Beck & Ross Levine, 2002. "Stock Markets, Banks, and Growth: Panel Evidence," NBER Working Papers 9082, National Bureau of Economic Research, Inc.
  13. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  14. Levine, Ross & Zervos, Sara, 1998. "Stock Markets, Banks, and Economic Growth," American Economic Review, American Economic Association, vol. 88(3), pages 537-58, June.
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  17. Pagano, Marco, 1993. "Financial markets and growth: An overview," European Economic Review, Elsevier, vol. 37(2-3), pages 613-622, April.
  18. Bekaert, Geert & Harvey, Campbell R. & Lundblad, Christian, 2001. "Emerging equity markets and economic development," Journal of Development Economics, Elsevier, vol. 66(2), pages 465-504, December.
  19. Valerie R. Bencivenga & Bruce D. Smith, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Oxford University Press, vol. 58(2), pages 195-209.
  20. Saint-Paul, Gilles, 1992. "Technological choice, financial markets and economic development," European Economic Review, Elsevier, vol. 36(4), pages 763-781, May.
  21. Klaus Neusser & Maurice Kugler, 1998. "Manufacturing Growth And Financial Development: Evidence From Oecd Countries," The Review of Economics and Statistics, MIT Press, vol. 80(4), pages 638-646, November.
  22. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  23. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
  24. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
  25. Shan, Jordan Z & Morris, Alan G & Sun, Fiona, 2001. "Financial Development and Economic Growth: An Egg-and-Chicken Problem?," Review of International Economics, Wiley Blackwell, vol. 9(3), pages 443-54, August.
  26. Nili, Masoud & Rastad, Mahdi, 2007. "Addressing the growth failure of the oil economies: The role of financial development," The Quarterly Review of Economics and Finance, Elsevier, vol. 46(5), pages 726-740, February.
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