Financial development and the oil curse: Evidence from Algeria

elias elhannani, farah and boussalem, abou bakr and Benbouziane, Mohamed (2016): Financial development and the oil curse: Evidence from Algeria. Published in: Topics in Middle Eastern and African Economies , Vol. Vol. 1, No. Issue No. 1, May 2016 (May 2016): pp. 112-125.

Abstract

Most of the empirical evidence has shown that the majority of oil dependent countries have the low level of financial development; thus, they are much more volatile and exposed to the oil shocks and the so named “oil curse”. This paper aims to investigate the impact of the Algerian financial system—as one of major oil economies—on the economic growth and escaping the oil curse. Over the past two decades, Algeria has courageously attempted to modernize its financial system despite social strife and challenges posed by the large hydrocarbon sector and an inefficient public sector. In fact, various reforms have been undertaken since the early 1990s to the transition from planned to an open market economy. So, the first section provides the research background based on a theoretical model and a set of empirical studies about financial development and the oil curse. An analytical framework of the Algerian financial system evolution is provided in the second section, focusing on the two phases: 1990-1999 and 2000-2011. Finally, using an econometric growth regression model to test the impact of financial development in Algeria over the period 1980-2014, the preliminary results show that the financial development enhanced economic growth but it has not contributed in reducing the negative effect of oil rents.

• Item Type: MPRA Paper
• Language: English
• Keywords: Oil Curse; Financial Development; Algeria
• Subjects: G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation; G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets ; Saving and Capital Investment ; Corporate Finance and Governance

References

Aghion P, Bachetta P, Ranciére R and Rogoff K, “Exchange rate volatility and productivity growth : the role of financial development”, Journal of monetary economics 56, 2009, P494-513.

Aghion P.and Banerjee A. “Volatility and growth”, Oxford University Press, 2005.

Algeria: Financial Sector assessment program (FSAP); International Monetary Fund and the World Bank; SecM2004-0344; July 2004.

Arezki R., Gylfason T.and Sy A. “Beyond the curse: policies to harness the power of natural resources”, International onetary Fund, 2012.

Arezki R.and Gylfason T., “Commodity price volatility, democracy and economic growth”, CESifo working paper n° 3619, 2011.

Bakwena and Bodma; “The Role of Financial Development in Natural Resource Abundant Economies: Does the Nature of the Resource Matter?”; BOJE: Botswana Journal of Economics; 2008; PP 16-31.

Bakwena and Seemule; “Sustaining Natural Resource Booms: Are Financial Institutions a Solution?”; Int. J. Eco.Res., 2013, v4i3, 21-33.

Collier P.and Goderis B., “Commodity prices, growth and the natural resource curse:

reconciling a conundrum” CSAE wps/2007-15, University of Oxford, 2007.

Cordon W.M. and Neary J.P., “Booming sector and de-industrialization in a small open economy”, International institute for applied systems analysis, 1982.

Elbadawi I. and Soto A. “Resource rents, political institutions and economic growth”, Economic esearch Forum working paper n° 678,2012.

Frenkel J., “The natural resource curse, a survey”, National bureau of Economic Research,working paper 15836,2010.

Gelb A., “Oil windfalls,blessing or curse ?”,Oxford university press, 1988.

Hattendorff, Christian ; “The Natural Resource Curse Revisited: Is There a Financial Channel?”; Conference Paper; Session: Economic Development and Technological Change, No. D10-V3; 2013.

Hooshmand, Hosseini and Moghani; “Oil Rents, Institutions and Financial Development: Case Study of selected Oil Exporting Countries”; Research Journal of Recent Sciences ISSN 2277-2502 Vol. 2(12), 100-108, December (2013).

Jbili, Enders and Treichel ; “Financial sector reforms in Algeria, Morocco and Tunisia : a preliminary assessment” ; International Monetary Fund working paper 97/81; 1997; P12.

Kaminsky G., Reinhart C.M. and Végh C. « When i trains,it poors : procyclical capital flows and macroeconomic policies »,National Bureau of Economic Research,2005.

Mehlum H., Moene K. and Torvik R., « Institutions and the resource curse », The economic journal Vol.116, January2006.

Ross M., «The political economy of the resource curse », World politics Vol.51, 1999.

Sachs J. and Warner A., « Natural resource abundance and economic growth », Centre for international development, 1997.

Sachs J. and Warner A., « The curse of natural resources », European economic journal Vol.45, 2001.

Van der ploag F., Poelhekke S., “Volatility and natural resource curse”, university of Oxford, 2008.

www.worldbank.org