۱- Introduction

۲- KART countries: natural resource abundance and the World Bank Lending

۳- Literature review

۴- Model specification

۵- Data and methodology

۶- Results and discussion

۷- Conclusion

References

Abstract

This study investigates the roles of the World Bank lending and abundance of natural resources in fostering the financial development of Kazakhstan, Azerbaijan, Russia, and Turkmenistan during the period from 1992 to 2017. Empirical findings confirm co-integration between the variables being investigated. The results of the dynamic ordinary least squares test indicate that in the long-run the World Bank lending and an abundance of natural resources positively affects financial development. We also confirm that excessive borrowing from the World Bank and faulty management of loans and credits from the bank negatively affect financial development. Empirical findings show that institutional quality has an impact on how effectively natural resources are managed. We discuss the policy implications of our study in detail in the conclusion section.

Introduction

Financial development constitutes an integral part of the World Bank’s strategy to contribute towards the long-term economic growth and poverty reduction in developing countries. The World Bank’s loans/ credits are one of the most essential instruments towards realizing this strategy (Bayer, 2004). These loans/credits1 to the member states are directed mainly towards improving financial and private sector, public sector governance, rural and human development (e.g., World Bank, 2016; World Bank, 2017). Some of the World Bank member states are natural resource abundant countries (e.g., Nigeria, Mongolia, Kazakhstan, Azerbaijan, Russia, Turkmenistan) borrowing towards enhancing the natural resource management and environment, and improving resource mobilization (e.g., World Bank, 2016; World Bank, 2017). The concern is whether these loans/credits are managed efficiently. The natural resource abundant member states have weak macroeconomic developments and may endure rent-seeking activities resulting in diminishing not only economic growth (see e.g., Auty, 1994; Sachs and Warner, 1995; Gylfason et al., 1999; Ross, 2001; Torvik, 2002; Watts, 2004; Rustamov and Adaoglu, 2018), but also impacting negatively the financial development (Auty, 2001; Gylfason, 2001). This phenomenon is known as the resource curse hypothesis (Auty, 1993). Collier (2006) compares loans/credits to natural resources and considers both as “rents.” Hence, the same negative consequences arising from the abundance of natural resources because of rent-seeking activities can also be stemming from the borrowed loans/credits from multilateral institutions (Morrison, 2007; Svensson, 2000; Smith, 2008; Collier, 2006).