Fiscal decentralization, political stability and resources curse hypothesis: A case of fiscal decentralized economies

• Published in: Resources policy 2021-08, Vol.72, p.102071, Article 102071
• Main Authors: Wang, Kai-Hua, Liu, Lu, Adebayo, Tomiwa Sunday, Lobonț, Oana-Ramona, Claudia, Moldovan Nicoleta
• Format: Article
• Language: English
• Subjects: Decentralization; Developed countries; Economic stabilization; Financial development; Fiscal decentralization; Hypotheses; Indexes; Natural resources; Political factors; Political finance; Political risk; Resource curse
• ISSN: 0301-4207; 1873-7641
• DOI: 10.1016/j.resourpol.2021.102071

This study provides new insight into the resources curse hypothesis by introducing fiscal decentralization and political risk index and its impact on financial development. We collected data for thirty-one developed countries from 1984 to 2019. Usage of a multidimensional index for financial development, the empirical findings indicate the resource curse hypothesis's existence. Further, fiscal decentralization, GDP, and political risk index improvement promote the sampled countries' financial development. Moreover, the multiplicative term for fiscal decentralization with natural resources rent rejects the resource curse hypothesis. Based on the empirical findings from quantile regression, this study suggests promoting fiscal decentralization and further improving the political risk index scoring to achieve a high financial development level in these countries and avoid the resource curse hypothesis. •This study checks the resources curse hypothesis by introducing fiscal decentralization and political risk index.•We used advanced panel econometric approaches.•The study verified that the resource curse hypothesis in thirty-one developed countries.•Fiscal decentralization and financial risk index improvement avoid the resource curse hypothesis.•Policymakers can focus on increasing fiscal decentralization to effectively utilize natural resources.