The role of institutional quality in the impact of oil rents on financial development in Brazil and Norway

Roudari, Soheil and Ghasemi, Hamidreza and Ghoreshi, Davood (2021): The role of institutional quality in the impact of oil rents on financial development in Brazil and Norway. Published in: Iranian Economic Review , Vol. 27, No. 3 (1 October 2023): pp. 1065-1102.

Abstract

The present study investigates the role of institutional quality in the effect of oil rents on financial development in Brazil and Norway from 1984 to 2019 by using the threshold structural vector autoregression (TSVAR) model. In this case, the analysis process has been accomplished in two different states: considering and ignoring the moderating role of the institutional quality index at the values above and below the financial development threshold. In Brazil, the resource curse hypothesis is confirmed at the values below the financial development threshold by ignoring the institutional quality index. If the institutional quality increases, the positive oil rent shock leads to the increment of the financial development through the stock market. Therefore, the hypothesis of the resource curse is rejected in Brazil. In Norway, the resource curse hypothesis is confirmed at the values above the financial development threshold by ignoring the moderating role of the institutional quality. If the moderating role of institutional quality is considered, a positive shock to oil rent reduces the financial development through the stock market in the short term and increases the financial development through the stock market in the long term. As a result, the role of institutional quality in the impact of oil rents on financial development through the stock market is crucial and can turn the curse of oil rents into a blessing.

• Item Type: MPRA Paper
• Language: English
• Keywords: Stock Market, Financial Development, TSVAR, Trade Openness, Economic Growth
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C24 - Truncated and Censored Models ; Switching Regression Models ; Threshold Regression Models; G - Financial Economics > G1 - General Financial Markets > G10 - General; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; P - Economic Systems > P1 - Capitalist Systems > P16 - Political Economy

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