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Natural resources, demand for external finance and financial development

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  • Hattendorff, Christian

Abstract

The paper contributes to the ongoing debate on the natural resource curse, which postulates a negative link between natural resource abundance and economic growth. It shows empirically that resource-rich countries appear to have a less developed financial system and investigates a potential mechanism behind this connection by applying insights from the finance and trade literature. It tests whether the resource sectors' lower demand for short-term external credit negatively affects financial development. This is done with cross-sectional and panel analysis, using an instrument for credit demand based on exogenous geographic determinants. The results, however, suggest that poor economic diversity rather than firms' credit demand drives the detrimental effect of resources on finance.

Suggested Citation

  • Hattendorff, Christian, 2014. "Natural resources, demand for external finance and financial development," Discussion Papers 2014/33, Free University Berlin, School of Business & Economics.
  • Handle: RePEc:zbw:fubsbe:201433
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    References listed on IDEAS

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    More about this item

    Keywords

    financial development; external dependence; natural resource curse; international trade; gravity model;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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