Financial development and natural resources. Is there a stock market resource curse?

Natural resources may become a blessing that can contribute to societies’ welfare increases. Yet natural resource abundance could also become a curse for countries’ economic development. Numerous studies have investigated the relationship between natural resources and economic performance. However, the results remain ambiguous and have no consensus in the literature. In specific, most literature focused only on testing the curse’s existence, while studies that involve the role of financial development in mediating the nexus remain scarce. To the best of our knowledge, this is a pioneer study in a developing country endowed by natural resources. Using panel data of 33 provinces from 2012 to 2018, this study implements the Generalized Method of Moments (GMM) technique to examine the existence of the natural resource curse and scrutinize the role of financial development in mitigating the curse. Results show that Indonesia potentially experiences a natural resource curse. Nonetheless, the negative effect of natural resources on economic growth could be mitigated by enhancing the role of financial development to reach a certain threshold over economic output. This study recommends policymakers to not only increase financial development across the provinces but also pay more serious attention to other factors causing the natural resource curse in Indonesia.

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Natural resources rents nexus with financial development in the presence of globalization: Is the “resource curse” exist or myth?

Resources Policy ◽

10.1016/j.resourpol.2020.101641 ◽

2020 ◽

Vol 66 ◽

pp. 101641 ◽

Cited By ~ 23

Author(s):

Jialin Guan ◽

Dervis Kirikkaleli ◽

Ayesha Bibi ◽

Weike Zhang

Keyword(s):

Natural Resources ◽

Financial Development ◽

Resource Curse

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Popular Resource Sovereignty

10.1093/oso/9780190905651.003.0002 ◽

2018 ◽

Author(s):

Leif Wenar

Keyword(s):

Human Rights ◽

Natural Resources ◽

Large Scale ◽

Good Reason ◽

Resource Curse ◽

Civil Conflict ◽

Popular Sovereignty ◽

State Sovereignty ◽

The People ◽

Rich Countries

Article 1 of both of the major human rights covenants declares that the people of each country “shall freely dispose of their natural wealth and resources.” This chapter considers what conditions would have to hold for the people of a country to exercise this right—and why public accountability over natural resources is the only realistic solution to the “resource curse,” which makes resource-rich countries more prone to authoritarianism, civil conflict, and large-scale corruption. It also discusses why cosmopolitans, who have often been highly critical of prerogatives of state sovereignty, have good reason to endorse popular sovereignty over natural resources. Those who hope for more cosmopolitan institutions should see strengthening popular resource sovereignty as the most responsible path to achieving their own goals.

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Conclusion

10.1093/oso/9780198787174.003.0011 ◽

2017 ◽

Author(s):

Jonathon W. Moses ◽

Bjørn Letnes

Keyword(s):

Natural Resources ◽

Resource Curse ◽

Specific Model ◽

Dutch Disease ◽

Political Conditions

There is broad recognition that Norway manages its natural resources successfully. Policymakers are flocking to Norway to try to learn the lessons provided by the Norwegian model. This book describes the main challenges facing policymakers in resource-rich states (e.g., Dutch Disease, Resource Curse, Paradox of Plenty), and the sort of institutional solutions and policies that are available to them. We explain why the Norwegian authorities chose the solutions they did, and how these choices have changed over the years, in response to changing market and political conditions. The result is a book that offers insight and understanding as to why the country made the choices it did, rather than providing a specific model for export.

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Improving Relations between a State and a Business Enterprise in the Context of Counteracting Adverse Effects of the Resource Curse

Sustainability ◽

10.3390/su13031067 ◽

2021 ◽

Vol 13 (3) ◽

pp. 1067

Author(s):

Marek Szturo ◽

Bogdan Włodarczyk ◽

Alberto Burchi ◽

Ireneusz Miciuła ◽

Karolina Szturo

Keyword(s):

Economic Policy ◽

Natural Resources ◽

Resource Sharing ◽

Global Economy ◽

Empirical Studies ◽

Relevant Literature ◽

Resource Curse ◽

Mineral Resources ◽

Strategic Resources ◽

Key Resources

Natural resources play a significant role in the development of the global economy. This refers, in particular, to strategic fuel and mineral resources. Due to the limited supply of natural resources and the lack of substitutes for most of the key resources in the world, the competition for the access to strategic resources is a feature of the global economy. It would seem that the countries which are rich in resources, because of this huge demand, enjoy spectacular economic prosperity. However, the results of empirical studies have demonstrated what is known as the ‘resource curse’. This article concentrates on the characteristics of the paradox of plenty, and in particular on the possibilities of preventing this phenomenon. The aim of this article is to identify the measures of economic policy with which to counteract the resource curse, based on the relationship between the state and the extraction business. Upon the critical analysis of the relevant literature, we concluded that the state’s economic policy, implemented in cooperation with the extraction business, is increasingly important for the prevention of the resource curse. In the context of the resource curse, the optimal and most consensual instrument, in comparison with other resource sharing agreements, is a production sharing agreement (PSA), which should also be adjusted to the current local economic conditions in a given country.

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The Finance Growth Link: Comparative Analysis Of Two Eastern African Countries

Comparative Economic Research ◽

10.1515/cer-2016-0025 ◽

2016 ◽

Vol 19 (3) ◽

pp. 147-167 ◽

Cited By ~ 1

Author(s):

Ashenafi Beyene Fanta ◽

Daniel Makina

Keyword(s):

Economic Growth ◽

Stock Market ◽

Financial Development ◽

Low Income ◽

Structural Breaks ◽

Response Analysis ◽

African Countries ◽

Vector Autoregressive ◽

Stock Market Development ◽

Sub Saharan

This paper examines the finance growth link of two low-income Sub-Saharan African economies – Ethiopia and Kenya – which have different financial systems but are located in the same region. Unlike previous studies, we account for the role of non-bank financial intermediaries and formally model the effect of structural breaks caused by policy and market-induced economic events. We used the Vector Autoregressive model (VAR), conducted impulse response analysis and examined variance decomposition. We find that neither the level of financial intermediary development nor the level of stock market development explains economic growth in Kenya. For Ethiopia, which has no stock market, intermediary development is found to be driven by economic growth. Three important inferences can be made from these findings. First, the often reported positive link between finance and growth might be caused by the aggregation of countries at different stages of economic growth and financial development. Second, country-specific economic situations and episodes are important in studying the relationship between financial development and economic growth. Third, there is the possibility that the econometric model employed to test the finance growth link plays a role in the empirical result, as we note that prior studies did not introduce control variables.

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Do Remittances Enhance Financial Development in Transitional Markets?

Comparative Economic Research ◽

10.2478/cer-2019-0033 ◽

2019 ◽

Vol 22 (4) ◽

pp. 73-89

Author(s):

Kunofiwa Tsaurai ◽

Patience Hlupo

Keyword(s):

Human Capital ◽

Stock Market ◽

Private Sector ◽

Financial Development ◽

Positive Influence ◽

Transitional Economies ◽

Human Capital Development ◽

Domestic Credit ◽

Capital Development ◽

Market Capitalisation

The paper explored (1) the impact of remittances on financial development and (2) whether the interaction between remittances and human capital development had an influence on financial development in transitional economies using the dynamic GMM approach, with data ranging from 1996 to 2014. Remittances were found to have had a non‑significant positive influence on financial development in transitional economies when stock market turnover, stock market value traded, domestic credit to the private sector by banks, and public bond sector development were used as measures of financial development. When stock market capitalisation, domestic credit to the private sector by financial sector, and private bond sector development were used as measures of financial development, remittances had a non‑significance negative effect on financial development. Using all other measures of financial development except stock market capitalisation (which produced a negative sign), the interaction between remittances and human capital development had an insignificant positive influence on financial development. Transitional economies are therefore urged to avoid over‑relying on remittance inflow and human capital development as sources of financial development.

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Natural Resources, Institutional Quality and Financial Development in GCC Member Countries: Visiting ‘Resource Curse Hypothesis’ by DCCE Estimation

Review of Economics and Development Studies ◽

10.47067/reads.v7i2.343 ◽

2021 ◽

Vol 7 (2) ◽

pp. 131-145

Author(s):

Muhammad Faheem ◽

Imran Sharif Chaudhry ◽

Sadam Hussain

Keyword(s):

Financial Development ◽

Natural Resource ◽

Structural Breaks ◽

Turning Point ◽

Resource Curse ◽

Institutional Quality ◽

Resource Rent ◽

Study Results ◽

Resource Hypothesis ◽

Natural Resource Rent

The main purpose of the study is to check whether natural resource rent affects the financial development or supporting the resource curse hypothesis by employing a recently developed estimation technique by Chudik and Pesaran (2015) from 1985 to 2017 in GCC member countries. The novelty of this methodology is to consider structural breaks and the heterogeneity issues that are common in panel data. The results of DCCE estimates are in support of the resource hypothesis that natural resource rent hurt financial development. Additionally, this study takes moderation of institutional quality to check the threshold point or turning point where the natural resource rent effect becomes positive. Our results of interaction term postulate that a higher level of institutional quality mitigates the adverse effect of natural resource rent on financial development. The study results recommend the policy of natural resource rent in the presence of high institutional quality should continue because it improves the financial development in GCC member countries.

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