Natural Resource Rent and Finance: The Moderation Role of Institutions

Muhammad Atif Khan, Muhammad Asif Khan, Kishwar Ali, József Popp and Judit Oláh
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Muhammad Atif Khan: School of Finance, Zhongnan University of Economics and Law, Wuhan 430073, China
Muhammad Asif Khan: Azad Jammu and Kashmir, Faculty of Management Sciences, University of Kotli, City Kotli 11100, Pakistan
Kishwar Ali: School of Finance, Zhongnan University of Economics and Law, Wuhan 430073, China
József Popp: Faculty of Economics and Social Sciences, Szent István University, 2100 Gödölő, Hungary
Judit Oláh: TRADE Research Entity, North-West University, Potchefstroom 2351, South Africa

Sustainability, 2020, vol. 12, issue 9, 1-23

Abstract: This study empirically examines the nexuses between the natural resource rent and financial development in the context of the emerging economy of Pakistan, between 1984 and 2018, by subsuming the important role of institutional quality in this context under symmetric, asymmetric, and threshold settings. The literature to date provides no evidence on the asymmetric relationship between natural resource rent and financial development, and the moderation role of institutional quality in this connection. We show that natural resource rent negatively influences financial development, whereas institutional quality boosts financial development and positively moderates the relationship in the context of Pakistan. Also, we find a single significant threshold value of 3.097 above which the relationship of resource rent-finance turns nonlinear—as up to this threshold the coefficient is 3.228, which declines slightly to 2.804 above the threshold level. This implies that regulators should maintain at least an institutional quality level of up to 3.097 to experience the most desired financial benefits of the natural resource rent in Pakistan. Moreover, the results corroborate the existence of asymmetries in the relationship between the natural resource rent and financial development. This empirical evidence provides fresh insight for stakeholders regarding ambiguous natural resource rents and financial sector development nexuses and recommends that planning organs in Pakistan and other countries in a similar development cadre should use institutional quality as a tool to avoid the resource curse and view natural resources as a blessing rather than a curse.

Keywords: natural resource rent; financial development; institutional quality (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:12:y:2020:i:9:p:3897-:d:356214

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