Does the resources curse hypothesis exist in China? What is the dynamic role of fiscal decentralization, economic policy uncertainty, and technology innovation for sustainable financial development?

Abstract

Sustainable economic development is the primary goal of each economy. In this regard, the role of natural resources has been extensively debated in the existing literature; however, the studies on the natural resource's influence on the financial development of developing countries are scarce. This study investigates the validity of the resource curse hypothesis related to financial development by recruiting fiscal decentralization, technology innovation, and economic policy uncertainty in China. The study employed the contemporary and innovative approach of quantile autoregressive distribution lag (QARDL) to evaluate the asymmetric association between variables from 1990 to 2020. Empirical findings validate the resource curse hypothesis in China, which implies that the natural resource rent compressed financial development. Likewise, economic policy uncertainty also adversely affected financial development. In contrast, fiscal decentralization and technological innovation accelerated financial development and neutralized the negative consequences of natural resources. Based on the findings, conductive short-run and long-run business strategies and regulations should be implemented, including the adequate consumption of natural resources, reallocation of funds at regional government levels, and transformation toward sustainable technologies to shift the curse into a blessing.