Testing the Existence of Natural Resource Curse in Indonesia: The Role of Financial Development

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.

Fenomena Natural Resource Curse dalam Pembangunan Wilayah di Indonesia

Although the phenomenon of natural resource curse is suspected to have occurred at the regional level in Indonesia, no measurement of such a phenomenon has been carried out yet. This research is aimed to provide an index of measuring the degree of natural resource curse at provincial level in Indonesia. Two indices, the natural resource dependence index and regional sustainable development index, were used to formulate index of regional resource curse (RRCI) using geometric mean of conditional weighted product method. The results found that provinces with richer in mining tend to have higher resource curse index compared with those with less extractive resources. ------------------------------------------ Meski fenomena natural resource curse diduga terjadi di tingkat daerah di Indonesia, pengukuran terhadap fenomena tersebut belum pernah dilakukan. Penelitian ini bertujuan untuk mengukur besaran natural resource curse di tingkat provinsi di Indonesia. Dua indikator, yakni indeks ketergantungan sumber daya alam dan indeks pembangunan daerah berkelanjutan digunakan untuk menghitung regional resource curse index (RRCI) menggunakan rerata geometrik conditional weighted product method. Hasilnya menunjukkan bahwa provinsi dengan sumber daya alam tambang yang lebih kaya cenderung menghadapi fenomena resource curse yang lebih tinggi dibandingkan provinsi dengan sumber daya ekstraktif yang lebih sedikit.

A Multivariate VAR Model for Evaluating Sustainable Finance and Natural Resource Curse in West Africa: Evidence from Nigeria and Ghana

The financial sector plays a critical role in society by mediating resources and assets within the economy between surplus and deficit units. Therefore, they have a great responsibility for the sustainability and prosperity of natural endowments. This study aimed to determine whether sustainable finance matters for the natural resource curse in Nigeria and Ghana. The empirical evidence is based on the Bayer and Hanck combined cointegration tests and Vector Autoregressive/Vector Error Correction Granger causality tests. The study highlights the importance of sustainable financing in natural resources management. Our findings also confirmed the existence of the financial resource curse in Nigeria and Ghana. Likewise, the medium through which sustainable finance affects the natural resource curse has been identified as the human development index (economic welfare). This current study has critical policy implications that suggest the need to establish a vibrant, sustainable financing strategy to assist domestic private investors with a strong interest in natural resource exploration and development, taking into account macroeconomic sustainability. Additionally, it also important to build a strong financial market which allows for policies designed to promote natural resource management.