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An investigation of the financial resource curse hypothesis in oil-exporting countries: The threshold effect of democratic accountability

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  • Kassouri, Yacouba
  • Altıntaş, Halil
  • Bilgili, Faik

Abstract

This paper investigates how the level of democratic accountability in a country affects the relationship between oil prices and financial development. We argue that the ability of oil-exporting countries to mitigate the oil curse in finance rests on the quality of their institutions. We tested this argument using a panel of 21 oil-exporting countries over the period 1984−2016. Based on sophisticated panel threshold techniques, we provide relevant insights into financial curse hypothesis. Specifically, we found that proper democratic institutions are likely to neutralize the curse in the financial sector. Another central finding emphasized that financial globalization is beneficial to the financial sector. Overall, we suggest that oil exporters should be cautious about the optimal threshold level of democracy in order to avoid the harmful effects of oil price fluctuations. Therefore, we identified the threshold level of democracy able to reverse the resource curse in the financial sector.

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  • Kassouri, Yacouba & Altıntaş, Halil & Bilgili, Faik, 2020. "An investigation of the financial resource curse hypothesis in oil-exporting countries: The threshold effect of democratic accountability," Journal of Multinational Financial Management, Elsevier, vol. 56(C).
    • Handle: RePEc:eee:mulfin:v:56:y:2020:i:c:s1042444x20300281
    DOI: 10.1016/j.mulfin.2020.100639
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    More about this item

    Keywords

    Oil prices; Financial sector development; Democracy; Panel threshold model; Oil-exporting countries;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models

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