This paper contributes to the literature concerning the natural resource curse by exploringudthe role of banking development in reducing the resource curse in a natural resource-basedudcountry, Yemen. Using time series data over the period 1980–2012, we find that natural resourceuddependence is negatively related to productivity, and this relationship depends on the level ofudbanking development. Increasing this level reduces the negative consequences of the natural resourceudcurse. Therefore, policymakers should proactively encourage credit to enable the banking sectorudto play a more efficient intermediary role in mobilizing domestic savings and channeling them toudproductive investments. This will help to accumulate permanent productive wealth to enhance anyuddiversification effort and compensate for the decline in natural resource production.
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