Ownership Structure of Oil Revenues, Political Institutions and Financial Markets in Oil-Producing Countries

This study examines the impact of the ownership structure of oil revenues on financial markets and institutions by considering the role of political institutions. We use the fixed effects model and data from 82 oil-producing countries to uncovered very interesting findings. First, the government?s share of oil revenues investment undermines the quality of financial institutions when the quality of political institutions is weak and enhances their quality when political institutions is strong. Second, the private share of oil revenue investment is negative on the depth of and access to financial institutions when the quality of political institutions is weak and their quality is stabilized when political institutions is strong. Finally, in the subsample of developing countries, similar threshold effects are observed for the depth of and access to financial markets. We conclude that oil-producing countries need solid political institutions to fully benefit from oil wealth to boost financial development.