Natural resource rents and access to finance

Broadening access to finance is among the top priorities for governments and international development organizations worldwide. This study examines the impact of natural resource rents on access to finance in financial institutions and financial markets across 109 countries from 1996 to 2020. The results of dynamic two-step system generalized method of moments estimation demonstrate that total natural resource rents hinder access to finance in financial institutions and markets, confirming the natural resource curse hypothesis. Specifically, rents from oil, coal, minerals, and forests negatively affect access to finance in financial institutions and markets, while gas rent has surprisingly a positive effect on both. Furthermore, institutional quality significantly promotes access to finance in financial institutions and markets. All aspects of institutional quality (control of corruption, government effectiveness, political stability, regulatory quality, rule of law, and voice and accountability) positively affect access to finance except regulatory quality, which has an insignificant effect on access to finance in financial institutions. Moreover, our findings show that institutional quality significantly moderates the effect of natural resource rents on access to finance, specifically, it varies depending on whether the institutions are strong or weak, being positive in the former case and negative in the latter. The study conducts several robustness tests using additional controls, alternative measures of financial access, and sample sensitivity analysis, all of which confirm the findings. Finally, we suggest policy implications for relevant stakeholders.