Natural resources and the trilemma of financial development, institutions, and markets: Sustainable development pathway via natural resources for China

Yufei Zhong, Xuesheng Chen, Xuehui Yao, Zhixian Wang and Hsu-Ling Chang

Resources Policy, 2024, vol. 90, issue C

Abstract: A plethora of studies are available on the linkage of natural resources, economic growth, and financial development. However, studies on the different financial indices are lacking in the literature concerning sustainable development; hence, to cover the gaps in the literature, this study evaluates the nexus of natural resources with the trilemma of financial development, markets, and institutions in China from 1983 to 2021. The study also checked the role of government expenditures (GEXEDU), renewable electricity (EREC), and economic growth (GDP). Several econometric strategies have been deployed as time series data, including ADF with break years to check the unit root in the data and Bayer-Hanck for each predicted variable to ensure the long-run equilibrium of explanatory variables with the predicted one. FMOLS and CCR are utilized for primary estimations, while the robust least squares method is used for robustness checks. The outcomes indicate that all variables are found static at level except the financial development index and renewable electricity, whereas long-run cointegration has been confirmed between all models. The primary outcomes reveal that GDP stimulates financial development and its three indices, while natural resources have a resource curse in financial development multidimensional and institutional indices while blessing exists on the financial markets index. Moreover, the negative effect of government education expenditures is present only in the financial markets index, while renewable electricity has a positive and significant influence on financial development multidimensional and market indices. Moreover, renewable electricity reduces the financial markets index in the short and long run. Besides, robustness check analysis provides similar outcomes that are robust and valid. Relevant policies regarding the nexus of natural resources and financial development indices are suggested.

Keywords: Natural resources; Financial development; Dutch disease; Trilemma; China (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:90:y:2024:i:c:s0301420724001260

DOI: 10.1016/j.resourpol.2024.104759

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