Investigating the role of institutional quality in the impact of natural resource rents on Iran's financial development

Existence of natural resources can increase corruption through rent-seeking behaviors if there is no strong institutional framework. In the present study, the role of institutional quality in the impact of natural resource rents on the financial development of Iran in the period 1984-2019 has been investigated. For this purpose, first to extract the indicators of institutional quality and financial development from the model of principal component analysis and then from the Markov switching model to investigate the effect of natural resource rents on financial development in the country in two cases with and without considering Institutional quality index has been used. Increasing the rent of natural resources has had a negative and significant impact on financial development in low regime of the financial development. Economic growth and trade openness have also had a positive and significant impact on all levels and regimes of financial development. Increasing the rent of natural resources in terms of improving the institutional quality index has had a positive and significant effect on financial development in a low regime. Increasing the inflation has had a negative and significant effect on financial development in all regimes of financial development. It shows that improving the quality of institutions in the country is not able to eliminate the Dutch disease and the curse of resources completely, and this issue with the non-significant impact of natural resource rents in terms of improving the institutional quality index in the high regime of financial development in the country is visible.