Institutional Quality and Financial Development in Resource-Rich Countries: A Nonlinear Panel Data Approach

Abstract

This paper deals with financial development in resource-rich countries with a look at the effect of institutional quality. Using a panel data of 100 countries over the period 1996–2017, we show that natural resources could affect financial development differently according to threshold levels of institutional quality. By estimating a nonlinear panel model with endogenous threshold variable, we find that even if the impact of natural resources on financial development is always negative, the improvement of institutional quality drastically reduces this negative impact by almost 78%, 86% or 96% according to the initial level of institutional quality of the country.