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

• Published in: Resources policy 2024-03, Vol.90, p.104759, Article 104759
• Main Authors: Zhong, Yufei, Chen, Xuesheng, Yao, Xuehui, Wang, Zhixian, Chang, Hsu-Ling
• Format: Article
• Language: English
• Subjects: China; Dutch disease; Financial development; Natural resources; Trilemma
• ISSN: 0301-4207; 1873-7641
• DOI: 10.1016/j.resourpol.2024.104759

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. •This study explores China's Natural Resources, Financial Development, Markets, and Institutions.•This study also examines the role of Renewable Electricity, Education Spending, and Economic Growth in China.•Resource curse exists in financial institutions and development indices and blessings in financial markets index.•Renewable electricity and government expenditure on education are supportive and asymmetrical except for GDP impact on financial indices.•The robustness check analysis results further confirm the findings.