The Effects of Resources Curse Phenomena on Financial Development and Economic Growth: A Dynamic Panel Approach

This paper evaluates the role played by financial development in economic growth، and also، the effect of economic growth on financial development of thirty six oil vis-à-vis nonoil economies during 1982-2011. Based on a panel of 5- years averages، we apply System Generalized Method of Moments (SYS-GMM) to estimate the dynamic equations. The estimation results show that financial development plays a crucial role in the efficiency of investment، and thus، in performance of those economies. However the quality of financial institutions varies significantly between oil and nonoil countries. Another important result is that، despite of relatively high level of investment in oil economies، the quality of investment is really poor. This suggests that it is not the level of investment on its own but the quality of investment which is important. The high level of investment should be accompanied by a well developed financial system which channels financial resources away from less production projects. We also find that، the positive effect of per capita income on financial development is smaller in oil economies، and that، the real exchange rate is among the determinants of financial development in those economies.