Financial management of natural resource market: Long-run and inter-temporal (forecast) relationship

Abstract

The financial management of natural resource market is imperative to achieve global environmental sustainability agenda through financing green projects. The objective of the study is to examine the role of financial development and growth specific factors on natural resource market in a context of Pakistan by using a time series data from 1970 to 2018. The results show that in the short-run, there is a negative relationship between broad money supply and total natural resource rents (including coal rents, mineral rents, and oil rents) while carbon tax negatively impact total natural resource rents through low mineral rents, thus the viability of ‘resource curse’ hypothesis is confirmed under financial constraint environment in a country. The ‘resource enhancing’ growth activities are largely visible with country's per capita income, FDI inflows, and trade openness that increases forest rents, mineral rents and oil rents respectively. In the long-run, broad money supply and carbon tax negatively impact a large number of prescribed natural resource rents with mediation of population density, while FDI inflows and trade in service supported few resource rents that entrenching growth activities in a given time period. The results further discussed the forecast relationship between financial factors and natural resource markets, which gives sound inferences to develop green financing resource management policies in a country.