Oil Rents and Financial Development Through The Stock Market: Is the Institutional Quality A Matter? New Evidence from Brazil and Norway

Document Type : Research Paper

Authors

1 Department of Economics, University of Qom, Qom, Iran.

2 Department of Economics, Petroleum University of Technology, Tehran, Iran.

3 Department of Economics, Allameh Tabataba'i University, Tehran, Iran.

4 Department of Management, Central branch of Islamic Azad University of Tehran, Tehran, Iran.

Abstract

The present study investigates the effect of oil resource rent on financial development through the stock market. In this case, the analysis process has been accomplished in two different states: considering and ignoring the institutional quality index in oil resource rent at the values above and below the financial development threshold. The threshold structural vector autoregression (TSVAR) model has been employed to analyze the stock markets in Norway and Brazil from 1984 to 2019. In Brazil, by ignoring the institutional quality index, the resource curse hypothesis is confirmed at the values below the financial development threshold. If the institutional quality index increases, the positive oil rent shock leads to the increment of financial development through the stock market. Therefore, the hypothesis of the resource curse is rejected in this country. In Norway, by ignoring the institutional quality, the resource curse hypothesis is confirmed at the values above the financial development threshold. If the institutional quality is considered in oil rent, a positive shock to oil rent reduces the financial development through the stock market in a short-term period. This situation increases the financial development through the stock market in a long-term period. As a result, an increase in institutional quality contradicts the resource curse hypothesis at the values above the threshold level. In Norway, if the institutional quality in oil rent is considered, a positive shock to oil rent enhances financial development through the stock market at values below the threshold. 

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Iranian Economic Review
Volume 27, Issue 3
October 2023
Pages 1065-1102

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