Do Natural Resource Revenues Hinder Financial Development? The Role of Political Institutions

SummaryWe hypothesize that natural resource revenues may deteriorate contract enforcement if political institutions are weak. As poor contract enforcement leads to low financial development, resource revenues may hinder financial development in countries with poor political institutions, but not in countries with comparatively better political institutions. We provide empirical support for this hypothesis based on within-country variation in our sample covering the period 1970–2005 and 133 countries. Our results are robust to the use of additional control variables, different samples, and alternative measures of financial development and political institutions.