Geopolitical risk, financial system and natural resources extraction: Evidence from China

Abstract

A sustainable financial system helps economies stand against current environmental problems and challenges. Scholars and policymakers worldwide are interested in examining the factors that might alleviate environmental issues and enhance financial development. Therefore, this study investigates the impact of natural resources, geopolitical risk, and trade on financial inclusion in China from 1992 to 2022. We use the most appropriate time series econometric approach such as the Autoregressive Distributed Lagged (ARDL) bound test, to analyze the long-run relationship among the targeted variables. The study used Fully Modified Ordinary Least Squares (FMOLS) and Dynamic Ordinary Least Squares (DOLS) techniques for robustness. The ARDL results indicate that natural gas and coal rents increase financial inclusion, whereas mineral rents decrease. Interestingly the trade boost while the geopolitical risk decreases the financial inclusion in China. Our results suggested that Policymakers and scholars should work on understanding how geopolitical risk affects increase at the national and global levels, as well as how to manage geopolitical events to create a healthy, sustainable environment. Moreover, new ventures and rent-seeking should be encouraged to eliminate natural resource waste and strengthen China's natural resource tax policy.