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Brahim Gaies
''Curse or blessing: how do oil price fluctuations influence financial development in low- and middle-income net oil-exporting countries?''
( 2021, Vol. 41 No.2 )
Why do oil-exporting developing countries tend to have weak levels of financial development? This study examines the role of oil price fluctuations in answering this question by focusing on the case of low- and middle-income net oil-exporting countries. Covering the period from 1987 to 2015, the empirical analysis is based on a large sample of 657 country-year observations. The long-run effect is captured using the System Generalized Method of Moments (GMM) estimator applied to a dynamic panel data model to deal with dynamic endogeneity bias, after controlling for several determinants of financial development. The results reveal that low- and middle-income net oil-exporting countries do not benefit from the increase in the world oil price to develop their financial system. Even worse, the rise in oil price jeopardizes the financial development of these countries. These counterintuitive and intriguing findings can be explained by the resource curse in financial development. They prove to be robust to the use of alternative test variables and alternative econometric methodologies.
Keywords: financial globalization, energy pricing, financial development, dynamic panel data
JEL: F3 - International Finance: General
Q4 - Energy: General
Manuscript Received : Jan 18 2021 Manuscript Accepted : Apr 09 2021

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