Economic performance and natural resources commodity prices volatility under COVID-19 perspective: Moderating role of economic freedom

Abstract

Since the beginning of the 21st century, the Chinese economy has faced several economic and financial challenges, including the outbreak of COVID-19, which hinders growth both at the domestic and international levels. However, such uneven economic outcomes are not independent but are linked with the volatility in other economic and institutional factors. Therefore, this study examines the economic performance and uncertainties in the prices of natural resources while adding the role of governance indicators (control over corruption and the rule of law) and economic freedom from Q-1 1996 to Q-4 2021. Moreover, the moderating role of economic freedom has also been tested in the long and short run through Bootstrap Autoregressive Distributed Lagged (BARDL) estimation technique. The initial findings confirm the presence of the stationarity properties of the data and the long-term equilibrium relationship between the variables. Likewise, the long and short-run result confirms that volatility in the prices of natural resources and corruption impedes growth in China. Yet, the role of the rule of law and economic freedom has been observed as significantly productive in promoting economic growth over the long run. Additionally, the results show a significant moderating role of economic freedom in dampening/strengthening the negative/positive relationship between natural resources and economic growth and the rule of law and economic growth, respectively. Conversely, the short-term findings further reflect that economic freedom significantly moderates the relationship between the rule of law and economic progression. Overall, the study suggests that China should formulate resilient-based policies by promoting free economic conditions to mitigate the adverse shocks of COVID-19 on natural resource prices, empower the rule of law, and control corruption for economic advancement.