Resources Curse and Financialization in Iran's Economy

Investigating the relationship between oil revenues and financialization in countries with abundant natural resources is particularly important. Considering the dependence of Iran's economy on oil rent, this paper examines the effect of oil revenues on financialization. The simultaneous equations system approach and time series data for 1979 through 2018 were used to analyze the relationship between variables. The research findings show that oil revenues positively and significantly affect financialization. Also, economic growth, human capital, and institutional quality have a negative and significant impact on financialization. But, physical capital and inflation impress positive and significant effects on financialization. Therefore, oil revenues along with the low quality of institutions, extensive sanctions, and oil price fluctuations conduct in an increase in rents and corruption, weakening of property rights, distrust of government policies, and an increase in speculative incentives. A rise in speculative incentives leads to the deviation of capital from the real to the financial sector; finally, the capital transfer to the financial sector also directs to an increase in financialization.