Oil Price Collapse and Firm Leverage in Resource-Dependent Countries
32 Pages Posted: 4 May 2018 Last revised: 18 Nov 2021
Date Written: April 26, 2018
Abstract
This study examines the financial channel between oil price volatility and the resource curse using firm-level data. A collapse in oil prices adversely affects firm borrowing in resource-dependent countries. However, unlike in non-resource-dependent countries where just the resource sector is harmed, both resource and non-resource firms are affected in resource-dependent countries in an oil price collapse. We also find evidence of a flight to quality in lending, implying that the decline in leverage can partly be attributed to a reduction in the credit supply. Our results suggest that oil price volatility operates via the financial channel to impede economic diversification in resource-dependent countries.
Keywords: resources and development, resource rich, capital structure, commodity prices, panel data
JEL Classification: Q32, O13, G32, Q02, G21
Suggested Citation: Suggested Citation