Natural resource curse hypothesis and governance: Understanding the role of rule of law and political risk in the context of China

Abstract

The subject of Natural Resources (NTR) can prove to be tricky for the country because the country not only produces a significant portion of NTR's, but it is also its user. The case of China is the prospect of the resource curse theory, which states that countries with a high abundance of NTR's might are not able to fulfill their potential as far as economic growth (ECG) is concerned. Moreover, reducing political interference in business and developing a stable political environment that does not pose a political risk (POL) has contributed to the excellent ECG for China over the years. Thus the current study is conducted to evaluate the contribution of governance amidst the resource curse hypothesis in the context of China through DYNARDL. The results of the analysis validate the presence of resource curse in both the short and long run. Moreover, the Rule of Law (LAW) was found to have a complementing role in financial development (FDV), whereas POL is found to weaken the FDV in both the short and long run. Based on the findings, it is recommended that China must ensure that the FDV continues to maintain the growth it has achieved over the years.