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Resources or development first: An interesting question for a developing country

Lu Wang, Hsu-Ling Chang, Arif Sari, James Karmoh Sowah and Xu-Yu Cai

Resources Policy, 2020, vol. 68, issue C

Abstract: Natural resource-based income or wealth should be a blessing and catalyst for growth in any country. However, paradoxically it has been suggested by many researchers that the countries rich in natural resources tend to transfer resource-based income to the non-productive sectors, resulting in slower investment and sluggish economic growth and financial development. This study employs the bootstrap Granger full-sample and rolling window estimation for sub-sample to explore the time-varying property between financial development and natural resources in Pakistan from 1971Q1 to 2017Q4. In view of structural changes, we analyze parameter stability and identify the relationship between the two estimated variables that are unstable. This outcome shows that full-sample causality checks can not be counted upon. Instead, we use a bootstrap-based rolling window method to revisit the complex causal link, and we find that both the positive and negative impacts of financial development (FD) on natural resources (NR) over many sub-periods, while NR having the same implications for FD in Pakistan. Our analysis confirms the resource-curse and the resource-blessing hypothesis exist in a different sub-stages. These significantly bi-directional changes in FD and NR, indicating the importance of stabilize resources and the financial market and give new insight for policymakers to ensure the effective management of natural resources.

Keywords: Natural resources; Financial development; Causality; Bootstrap; Rolling windows; Pakistan (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:68:y:2020:i:c:s0301420720302324

DOI: 10.1016/j.resourpol.2020.101714

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