Natural Resources and Stock Market Development: Role of Institutional Quality

The revenues generated from natural resources can serve as a catalyst for economic growth and development in different countries. Among the various channels through which the income derived from natural resources can impact the economic growth and development, stock market development plays a significant role. Historical experiences of some developed countries endowed with natural resources reveal that the income from natural resources has led to substantial stock market development only when these countries have had a favorable level of institutional quality. With this in mind, this study examines the role of institutional quality in the effect of natural resource income on stock market development in selected rich in such resource’s countries, during the period from 2000 to 2020, using Panel Generalized Method of Moments (Panel GMM) estimations. The research findings indicate that natural resource income has a positive impact on stock market development in the selected countries and that the positive influence of this variable will increase further if institutional quality improves in these countries. Furthermore, based on the results of the Panel Dumitrescu-Hurlin causality test, a two-way causality between stock market development and the interactive variable is established. Furthermore, based on the results of the Panel Dumitrescu-Hurlin causality test, a two-way causality between stock market development and the interactive variable is established.