Financial development curse in resource-rich countries: The role of commodity price shocks

Why do commodity-dependent developing countries have typically lower levels of financial development than their peers? The literature has proposed many possible explanations, but there is no consensus. In this paper, we explore whether the shocks to commodity prices can lead to lower financial development. We test the hypothesis on 68 commodity-rich developing countries over the period 1980-2014, and we find strong evidence of the financial development curse through the channel of commodity price shocks. We also show that the impact of these shocks can be mitigated through good quality of governance. (C) 2019 Board of Trustees of the University of Illinois. Published by Elsevier Inc. All rights reserved.