In a just released
working paper with Steven Poelhekke we address the identification challenge by looking at the effect of exogenous windfall gains in natural resource rents, as measured by price shocks
(which can be assumed to the exogenous for individual countries), on financial intermediation. We find a relative decline in the volume of financial sector deposits in countries that experience an unexpected natural resource windfall. Moreover, we find
a similar relative decline in lending, which is mostly due to the decrease in deposits. The smaller role for the financial sector in intermediating resource booms is accompanied by a stronger role of governments in channeling resources into the economy, mostly
through higher government consumption. Overall, this is consistent with the idea that natural resource windfalls are not being intermediated through the financial system, at the expense of long-term economic development of these countries.