The Impact of Natural Resources on Financial Development: The Global Perspective
Abstract
Using a time series approach, this study investigates how natural resources impact financial development from a global perspective over the 1980-2019 period. Some important determinants of financial development (economic growth, trade openness, population growth, and investment) have been added to the model as control variables. Unit root tests have revealed that all the variables are integrated of order one. Johansen cointegration test has shown that the variables are in a long-run equilibrium relationship. The vector error correction model (VECM) has estimated the coefficient of the error correction term (ECT) which suggests that the short-run values of natural resources, economic growth, trade openness, population growth, and investment contribute to financial development converging to its long-run equilibrium level by a 23.63% annual speed of adjustment. The estimated coefficients suggest that global natural resource rent has a statistically-significant negative impact on global financial development in the long-run (thereby validating the financial resource curse), but not in the short-run. Causality test results imply that neither global natural resource rent nor global financial development Granger-causes each other.
Full Text:
PDFReferences
Adetutu, M. O., Odusanya, K. A., Ebireri, J. E. & Murinde, V. (2019). "Oil booms, bank productivity and natural resource curse in finance". Economics Letters, 186.
Ahmad, M., Jiang, P., Majeed, A., Umar, M., Khan, Z. & Muhammad, S. (2020). "The dynamic impact of natural resources, technological innovations and economic growth on ecological footprint: An advanced panel data estimation". Resources Policy, 69.
Ahmed, Z., Asghar, M. M., Malik, M. N. & Nawaz, K. (2020). "Moving towards a sustainable environment: The dynamic linkage between natural resources, human capital, urbanization, economic growth, and ecological footprint in China". Resources Policy, 67.
Alden, C. & Alves, A. C. (2009). "China and Africa's Natural Resources: The Challenges and Implications for Development and Governance". South African Institute of International Affairs, Occasional Paper No 41.
Ali, A., Ramakrishnan, S. & Faisal (2021). "Financial development and natural resources. Is there a stock market resource curse?" Resources Policy, 75.
Aljarallah, R. A. & Angus, A. (2020). “Dilemma of Natural Resource Abundance: A Case Study of Kuwait”. SAGE Open, 10 (1).
Aluko, O.A. & Ibrahim, M. (2019). “On the Macroeconomic Determinants of Financial Institutions Development in Sub-Saharan Africa”. International Review of Economics, 67, 69–85.
Arezki, R. & van der Ploeg, F. (2010). “Do natural resources depress income per capita?” CESifo Working Paper, No. 3056.
Asiedu, E. (2005). “Foreign Direct Investment in Africa: The Role of Natural Resources, Market Size, Government Policy, Institutions and Political Instability”. WIDER Research Paper, No. 2005/24.
Asiedu, E. (2013). "Foreign Direct Investment, Natural Resources and Institutions". International Growth Centre.
Asif, M., Khan, K. B., Anser, M. K., Nassani, A. A., Abro, M. M. Q. & Zaman, K. (2019). “Dynamic interaction between financial development and natural resources: Evaluating the ‘Resource curse’ hypothesis”. Resources Policy, 65.
Auty, R. M. (2000). "How natural resources affect economic development". Development Policy Review, 18, 347-364.
Auty, R. M. (2006). "Natural resources, capital accumulation and the resource curse". Ecological Economics, 61, 627-634.
Ayadi, R., Arbak, E., Naceur, S.B., & De Groen, W.P. (2014). “Determinants of Financial Development Across the Mediterranean”. In: Ayadi, R., Dabrowski, M. & De Wulf, L. (eds) Economic and Social Development of the Southern and Eastern Mediterranean Countries, 159-181.
Badeeb, R. A. & Lean, H. H. (2017). "The Determinants of Financial Development in the Republic of Yemen: Evidence from the Principal Components Approach". Capital Markets Review, 25 (2), 32-48.
Badeeb, R. A., Lean, H. H. & Clark, J. (2016). "The evolution of the natural resource curse thesis: A critical literature survey". Resources Policy, 51, 123-134.
Basedau, M. & Wegenast, T. C. (2013). “Ethnic fractionalization, natural resources and armed conflict”. Conflict Management and Peace Science, 31(4), 1-26.
Beck, T. (2010). “Finance and Oil: Is There a Resource Curse in Financial Development?” European Banking Center Discussion Paper No. 2011-004.
Benyah, F. E. K. (2010). "The Determinants of Financial Development: A Focus on African Countries". Retrieved from https://www.diva-portal.org/smash/get/diva2:337616/FULLTEXT01.pdf (Accessed: 05/03/2022)
Bhattacharyya, S. & Hodler, R. (2009). "Natural resources, democracy and corruption". European Economic Review, 54 (4), 608-621.
Bhattacharyya, S. & Hodler, R. (2014). "Do Natural Resource Revenues Hinder Financial Development? The Role of Political Institutions". World Development, 57, 101-113.
Bravo-Ortega, C. & De Gregorio, J. (2005). "The Relative Richness of the Poor? Natural Resources, Human Capital and Economic Growth". Retrieved from https://openknowledge.worldbank.org/bitstream/handle/10986/8923/wps3484.pdf?sequence=1 (Accessed: 22/02/2022)
Brunnschweiler, C. N. & Bulte, E. H. (2008a). "Linking Natural Resources to Slow Growth and More Conflict". AAAS, 320 (5876), 616-617.
Brunnschweiler, C. N. & Bulte, E. H. (2008b). "The resource curse revisited and revised: A tale of paradoxes and red herrings". Journal of Environmental Economics and Management, 55 (3), 248-264.
Brunnschweiler, C. N. & Bulte, E. H. (2009). "Natural resources and violent conflict: resource abundance, dependence, and the onset of civil wars". Oxford Economic Papers, 61 (4), 651–674.
Busse, M. & Gröning, S. (2011). “The resource curse revisited: Governance and natural resources”. HWWI Research Paper, No. 106.
Cavalcanti, T. V., Mohaddes, K. & Raissi, M. (2009). "Growth, development and natural resources: New evidence using a heterogeneous panel analysis". The Quarterly Review of Economics and Finance, 51 (4), 305-318.
Cherif, M. & Dreger, C. (2016). “Institutional Determinants of Financial Development in MENA countries”. Review of Development Economics, 20 (3), 670-680.
Cockx, L. & Francken, N. (2014). "Extending the concept of the resource curse: Natural resources and public spending on health". Ecological Economics, 108, 136-149.
Cockx, L. & Francken, N. (2016). "Natural resources: A curse on education spending?" Energy Policy, 92, 394-408.
Daniele, V. (2011). "Natural resources and the “quality” of economic development". The Journal of Development Studies, 47 (4), 545-573.
Dellepiane-Avellaneda, S., Hardiman, N. & Heras, J. L (2021). “Financial resource curse in the Eurozone periphery”. Review of International Political Economy.
Dickey, D. A. & Fuller, W. A. (1979). "Distribution of the Estimators for Autoregressive Time Series with a Unit Root". Journal of the American Statistical Association, 74 (366), 427–431.
Dogan, E., Altinoz, B. & Tzeremes, P. (2020). "The analysis of ‘Financial Resource Curse’ hypothesis for developed countries: Evidence from asymmetric effects with quantile regression". Resources Policy, 68.
Dogan, E., Madaleno, M. & Altinoz, B. (2020). "Revisiting the nexus of financialization and natural resource abundance in resource-rich countries: New empirical evidence from nine indices of financial development". Resources Policy, 69.
Dwumfour, R. A. & Ntow-Gyamfi, M. (2018). "Natural resources, financial development and institutional quality in Africa: Is there a resource curse?" Resources Policy, 59, 411-426.
Elhannani, F. E., Boussalem, A. B. & Benbouziane, M. (2016). "Financial development and the oil curse: Evidence from Algeria". Topics in Middle Eastern and African Economies, 18 (1).
Elsherif, M. A. (2015). "The Determinants of Financial Development: Empirical Evidence from Egypt". The Macrotheme Review, 4 (3).
Emenalo, C. O., Gagliardi, F. & and Hodgson, G. M. (2017). “Historical institutional determinants of financial system development in Africa”. Journal of Institutional Economics, 14 (2), 345-372.
Engle, R. F. & Granger, C. W. J. (1987). "Co-integration and error correction: Representation, estimation and testing". Econometrica, 55 (2), 251–276.
Gaies, B. (2021). ''Curse or blessing: how do oil price fluctuations influence financial development in low- and middle-income net oil-exporting countries?'' Economics Bulletin, 0 (0), A68.
Garside, M. (2021). Leading countries worldwide based on natural resource value as of 2021. Retrieved from https://www.statista.com/statistics/748223/leading-countries-based-on-natural-resource-value/ (Accessed: 18/02/2022)
Gerelmaa, L. & Kotani, K. (2016). "Further investigation of natural resources and economic growth: Do natural resources depress economic growth?". Resources Policy, 50, 312-321.
Gokmenoglu, K. K. & Rustamov, B. (2019). "Examining the World Bank Group lending and natural resource abundance induced financial development in KART countries". Resources Policy, 63.
Granger, C. W. J. (1969). “Investigating causal relations by econometric models and cross-spectral methods”. Econometrica, 37, 424–438.
Guan, J., Kirikkaleli, D., Bibi., A. & Zhang, W. (2020). "Natural resources rents nexus with financial development in the presence of globalization: Is the “resource curse” exist or myth?". Resources Policy, 66.
Gunton, T. (2015). "Natural Resources and Regional Development: An Assessment of Dependency and Comparative Advantage Paradigms". Economic Geography, 79 (1), 67-94.
Gutti, B., Aji, M. M. & Magaji, G. (2012). "Environmental Impact of Natural Resources Exploitation in Nigeria And the Way Forward". Journal of Applied Technology in Environmental Sanitation, 2 (2), 95-102.
Gylfason, T. (2000). "Natural Resources, Education and Economic Development". European Economic Review, 45 (4-6), 847-859.
Gylfason, T. (2001). “Natural Resources and Economic Growth: What Is the Connection?”. CESifo Working Paper, No. 530.
Gylfason, T., Herbertsson, T. T. & Zoega, G. (1999). "A Mixed Blessing: Natural Resources and Economic Growth". Macroeconomic Dynamics, 3(2), 204-225.
Gylfason, T. & Zoega, G. (2001). "Natural Resources and Economic Growth: The Role of Investment". Economic Policy Research Unit.
Hacker, R. S. & Hatemi-J, A. (2008). "Optimal lag-length choice in stable and unstable VAR models under situations of homoscedasticity and ARCH". Journal of Applied Statistics, 35 (6), 601–615.
Haseeb, M., Kot, S., Hussain, H. I. & Kamarudin, F. (2020). "The natural resources curse-economic growth hypotheses: Quantile-on-Quantile evidence from top Asian economies". Journal of Cleaner Production, 279.
Hassan, D. F. (2013). "Is There a Resource Curse in Financial Development? Empirical Study on Middle East and North Africa". Retrieved from https://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=3878490&fileOId=3878491 (Accessed: 12/03/2022)
Hassan, S. T., Xia, E., Khan, N. H. & Shah, S. M. A. (2018). "Economic growth, natural resources, and ecological footprints: evidence from Pakistan". Environmental Science and Pollution Research, 26, 2929–2938.
Hattendorff, C. (2013). “The Natural Resource Curse Revisited: Is There a Financial Channel?” Economic Development and Technological Change, No. D10-V3.
Hattendorff, C. (2014). “Natural resources, export concentration and financial development”. Diskussionsbeiträge, No. 2014/34.
Hayat, A. (2014). “FDI and economic growth: The role of natural resources”. IES Working Paper, No. 36/2014.
Havranek, T., Horvath, R. & Zeynalov, A. (2016). "Natural Resources and Economic Growth: A Meta-Analysis". IES Working Paper, No. 03/2016.
Herb, M. (2005). “No representation without taxation? Rents, development, and democracy”. Comparative Politics, 37 (3), 297-316.
Herbst, J. (2000). "Economic Incentives, Natural Resources and Conflict in Africa". Journal of African Economies, 9 (3), 270-294.
Huang, Y. (2011). “Private investment and financial development in a globalized world”. Empir Econ, 41, 43–56.
Humphreys, M. (2005). "Natural Resources, Conflict, and Conflict Resolution: Uncovering the Mechanisms". Journal of Conflict Resolution, 49 (4), 508-537.
Ibrahim, M. & Sare, Y. A. (2018). “Determinants of financial development in Africa: How robust is the interactive effect of trade openness and human capital?” Economic Analysis and Policy, 60, 18-26.
IMF (2022). Access to Macroeconomic and Financial Data. Retrieved from https://data.imf.org/?sk=F8032E80-B36C-43B1-AC26-493C5B1CD33B&sId=1472846904452 (Accessed: 14/07/2022) [dataset]
Ji, K., Magnus, J. R. & Wang, W. (2013). "Natural Resources, Institutional Quality, and Economic Growth in China". Environmental and Resource Economics, 57, 323–343.
Jiang, C., Zhang, Y., Kamran, H. W. & Afshan, S. (2021). "Understanding the dynamics of the resource curse and financial development in China? A novel evidence based on QARDL model". Resources Policy, 72.
Johansen, S. (1991a). "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models". Econometrica, 59 (6), 1551–1580.
Johansen, S. (1991b). “Statistical Analysis of Cointegrating Vector”. in: Engle R. F., and Granger C. W. J. (eds), Long-Run Economic Relationships. Oxford: Oxford University Press.
Johansen, S. (1995). “A Statistical Analysis of Cointegration for I (2) Variables”. Econometric Theory, 11, 25–59.
Kassouri, Y., Altıntaş, H. & Bilgili, F. (2020). "An investigation of the financial resource curse hypothesis in oil-exporting countries: The threshold effect of democratic accountability". Journal of Multinational Financial Management, 56.
Kaznacheev, P. (2017). "Curse or Blessing? How Institutions Determine Success in Resource-Rich Economies". Policy Analysis, 808.
Khalfaoui, H. (2015). “The Determinants of Financial Development: Empirical Evidence from Developed and Developing Countries”. Applied Economics and Finance, 2 (4).
Khan, M. A., Gu L., Khan M. A & Olah J. (2020). “Natural Resources and Financial Development: The Role of Institutional Quality”. Journal of Multinational Financial Management.
Khan, I., Hou, F. & Le, H. P. (2020). "The impact of natural resources, energy consumption, and population growth on environmental quality: Fresh evidence from the United States of America". Science of The Total Environment, 754.
Khan, Z., Hussain, M., Shahbaz, M., Yang, S. & Jiao, Z. (2020). "Natural resource abundance, technological innovation, and human capital nexus with financial development: A case study of China". Resources Policy, 65.
Kim, D. & Lin, S. (2015). "Natural Resources and Economic Development: New Panel Evidence". Environmental and Resource Economics, 66, 363–391.
Koubi, V., Spilker, G., Bohmelt, T. & Bernauer, T. (2013). "Do natural resources matter for interstate and intrastate armed conflict?". Journal of Peace Research, 51 (2), 227-243.
Kronenberg, T. (2002). “The Curse of Natural Resources in The Transition Economies”. Arbeiten aus dem Osteuropa-Institut München, 241.
Kurronen, S. (2015). "Financial sector in resource-dependent economies". Emerging Markets Review, 23, 208-229.
Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., & Shin, Y. (1992). "Testing the null hypothesis of stationarity against the alternative of a unit root". Journal of Econometrics, 54 (1–3), 159–178.
Law, S. H. & Habibullah, M. S. (2009). "The Determinants of Financial Development: Institutions, Openness and Financial Liberalisation". South African Journal of Economics, 77 (1), 45-58.
Le Billon, P. (2001). "The political ecology of war: natural resources and armed conflicts". Political Geography, 20 (5), 561-584.
Li, Z., Rizvi, S. K. A., Rubbaniy, G. & Umar, M. (2021). "Understanding the dynamics of resource curse in G7 countries: The role of natural resource rents and the three facets of financial development". Resources Policy, 73.
Mehlum, H., Moene, K. & Torvik, R. (2006a). "Cursed by Resources or Institutions?". The World Economy, 29 (8), 1117-1131.
Mehlum, H., Moene, K. & Torvik, R. (2006b). "Institutions and the Resource Curse". The Economic Journal, 116 (508), 1–20.
Mideksa, T. K. (2012). "The economic impact of natural resources". Journal of Environmental Economics and Management, 65 (2), 277-289.
Mignamissi, D. & Kuete, F. Y. (2020). “Resource rents and happiness on a global perspective: The resource curse revisited”. Resources Policy, 71.
Mildner, S., Lauster, G. & Wodni, W. (2011). "Scarcity and Abundance Revisited: A Literature Review on Natural Resources and Conflict". International Journal of Conflict and Violence, 5 (1).
Mittelman, M. (2017). The Resource Curse. Retrieved from https://www.bloomberg.com/quicktake/resource-curse (Accessed: 19/02/2022)
Mlachila, M. & Ouedraogo, R. (2019). "Financial development curse in resource-rich countries: The role of commodity price shocks". The Quarterly Review of Economics and Finance, 76, 84-96.
Mukoyama, N. (2019). "Colonial origins of the resource curse: endogenous sovereignty and authoritarianism in Brunei". Democratization, 27 (2).
Nawaz, K., Lahiani, A. & Roubaud, D. (2019). "Natural Resources as Blessings and Finance-Growth Nexus: A Bootstrap ARDL Approach in An Emerging Economy". Resources Policy, 60, 277-287.
Papyrakis, E. & Gerlagh, R. (2004). “The resource curse hypothesis and its transmission channels”. Journal of Comparative Economics, 32(1), 181-193.
Phillips, P. C. B. & Perron, P. (1988). "Testing for a Unit Root in Time Series Regression". Biometrika, 75 (2), 335–346.
Raza, S. H., Shahzadi, H. & Akram, M. (2014). “Exploring the Determinants of Financial Development (Using Panel Data on Developed and Developing Countries)”. Journal of Finance and Economics, 2 (5), 166-172.
Robinson, J. A., Torvik, R. & Verdier, T. (2006). “Political foundations of the resource curse”. Journal of Development Economics, 79 (2).
Ross, M. (2003). "Natural Resources and Civil War: An Overview". Retrieved from https://www.unepfi.org/fileadmin/documents/conflict/ross_2003.pdf (Accessed: 13/02/2022)
Ross, M. L. (2004a). "What Do We Know about Natural Resources and Civil War?". Journal of Peace Research, 41 (3), 337-356.
Ross, M. L. (2004b). "How Do Natural Resources Influence Civil War? Evidence from Thirteen Cases". International Organization, 58 (1), 35 - 67.
Ross, M. L. (2012). The oil curse: how petroleum wealth shapes the development of nations. Princeton: Princeton University Press.
Ross, M. L. (2014). "What Have We Learned about the Resource Curse?" Annual Review of Political Science, 18, 239-259.
Rustad, S. A. & Binningsbø, H. M. (2012). "A price worth fighting for? Natural resources and conflict recurrence". Journal of Peace Research, 49 (4), 531–546.
Sachs, J. & Warner, A.M. (1995). “Natural Resources Abundance and economic growth”. National bureau for Economic Research, Working Paper 5398.
Sachs, J. D. & Warner, A. M. (2001). "The curse of natural resources". European Economic Review, 45 (4-6), 827-838.
Shahbaz, M., Naeem, M., Ahad, M. & Tahir, I. (2017). "Is natural resource abundance a stimulus for financial development in the USA?". Resources Policy, 55, 223-232.
Shobande, O. A. & Enemona, J. O. (2021). "A Multivariate VAR Model for Evaluating Sustainable Finance and Natural Resource Curse in West Africa: Evidence from Nigeria and Ghana". Sustainability, 13 (5).
Standing, A. (2007). "Corruption and the extractive industries in Africa: can combatting corruption cure the resource curse?". Institute for Security Studies Papers, 2007 (153).
Stevens, P. J. (2005). “‘Resource Curse’ and How to Avoid It”. The Journal of Energy and Development, 31(1), 1–20.
Sun, Y., Ak, A., Serener, B. & Xiong, D. (2020). "Natural resource abundance and financial development: A case study of emerging seven (E−7) economies". Resources Policy, 67.
Takyi, P. O. & Obeng, C. K. (2013). “Determinants of Financial Development in Ghana”. International Journal of Development and Sustainability, 2 (4).
The World Bank (2022). World Development Indicators. Retrieved from https://databank.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG/1ff4a498/Popular-Indicators# (Accessed: 14/07/2022) [dataset]
Torvik, R. (2001). "Natural resources, rent seeking and welfare". Journal of Development Economics, 67, 455-470.
Tsani, S. (2012). "Natural resources, governance and institutional quality: The role of resource funds". Resources Policy, 38 (2), 181-195.
Umar, M., Ji, X., Mirza, N. & Rahat, B. (2021). "The impact of resource curse on banking efficiency: Evidence from twelve oil producing countries". Resources Policy, 72.
Vahabi, M. (2017). “A critical survey of the resource curse literature through the appropriability lens”. Retrieved from https://hal.archives-ouvertes.fr/hal-01583559/document (Accessed: 05/03/2022)
Van der Ploeg, F. (2010). “Natural resources: Curse or blessing?” CESifo Working Paper, No. 3125.
Venables, A. J. (2016). "Using Natural Resources for Development: Why Has It Proven So Difficult?". Journal of Economic Perspectives, 30 (1), 161-84.
Voghouei, H., Azali, M. & Jamali, M. A. (2011). “A survey of the determinants of financial development”. Asian - Pacific Economic Literature, 25 (2), 1-20.
Yıldırım, S., Gedikli, A., Erdoğan, S. & Yıldırım, D. C. (2020). "Natural resources rents-financial development nexus: Evidence from sixteen developing countries". Resources Policy, 68.
Yuxiang, K. & Chen, Z. (2010). "Resource abundance and financial development: Evidence from China". Resources Policy, 36 (1), 72-79.
Zafar, M. W., Zaidi, S. A. H., Khan, N. R., Mirza, F. M., Hou, F. & Kirmani, S. A. A. (2019). "The impact of natural resources, human capital, and foreign direct investment on the ecological footprint: The case of the United States". Resources Policy, 63.
Zaidi, S. A. H., Wei, Z., Gedikli, A., Zafar, M. W., Hou, F. & Iftikhar, Y. (2019). "The impact of globalization, natural resources abundance, and human capital on financial development: Evidence from thirty-one OECD countries". Resources Policy, 64.
Zainudin, N. B. & Nordin, N. B. (2017). “The Determinants of Financial Development In Four Selected Asian Countries: A Panel Data Analysis”. International Journal of Business, Economics and Law, 12 (1).
Zallé, O. (2018). "Natural resources and economic growth in Africa: The role of institutional quality and human capital". Resources Policy, 62, 616-624.
Refbacks
- There are currently no refbacks.
Copyright (c) 2023 Remy Jonkam Oben
This work is licensed under a Creative Commons Attribution 4.0 International License.
This work is licensed under a Creative Commons Attribution 4.0 International License.