Abstract
This paper examines the relationship between the development of the financial sector of the economy and natural rents. The financial sector of the economy is currently an important driver of economic growth. The study was conducted through the prism of addressing two key issues: determining the nature of the impact of natural rents on the financial development of Bangladesh; study of the role of the quality of institutional mechanisms in the relationship between natural rent and financial development of Bangladesh. The study period includes 35 years, from 1984 to 2019. The calculations were performed using an autoregressive model with a distributed lag, based on the order of integration and stationary properties of the variables of this study. The article presents the results of an empirical analysis, which showed a significant negative impact of the lease of natural resources on the financial development of Bangladesh. It is empirically confirmed that the quality of institutional mechanisms for the functioning of economic entities has a positive effect on the relationship between natural rents and the financial development of Bangladesh. The results of the study empirically confirm the hypothesis of insufficient natural resources in Bangladesh. The article emphasizes that the positive moderating role of the quality of the institutional base indicates that due to the strengthening of the institutional base, insufficient resources can become a benefit for the financial sector. The results of the study can be useful for representatives of the Government of Bangladesh from the standpoint of improving the quality of institutional infrastructure in order to ensure financial development, in which there will be positive effects from the implementation of natural resource lease processes. In the future, a study is planned to expand potential sources for the proper use of natural resource leases in Bangladesh. Keywords: natural resource rent, financial development, institutional quality, Pakistan.
Highlights
Financial sector development is generally recognized as an important driver of economic growth and development of a country (Demetriades & Andrianova, 2004; Levine, 2003; Pradhan, Bahmani, & Kiran, 2014)
Descriptive statistics show the mean value of financial development economic growth and trade openness as compared to the other variables is higher and a higher standard deviation can be seen in the case of natural resource rent, financial development, and trade openness
This study examines the relationship between natural resource rent and financial sector development by incorporating the vital role of institutional quality in this paradigm in an emerging and resource-rich economy of Bangladesh, from 1984 to 2019
Summary
Financial sector development is generally recognized as an important driver of economic growth and development of a country (Demetriades & Andrianova, 2004; Levine, 2003; Pradhan, Bahmani, & Kiran, 2014). Considering the importance of the financial sector, literature extensively focused on the sources/determinants of financial sector development. Natural resource dependence is considered as a hurdle to economic growth, and this phenomenon is labelled as “natural resource curse hypothesis” (NRCH) (Badeeb, Lean, & Clark, 2017; van der Ploeg, 2011). (Dwumfour & Ntow-Gyamfi, 2018; Guan et al, 2020; Mlachila & Ouedraogo, 2019; Yuxiang & Chen, 2011) documented a negative impact of natural resources rent on various indicators of financial sector development. A strand of literature evidenced a decisive role of political institutions in determining the effect of natural resource rent on financial sector development. Natural resources are blessing or curse depends on the quality of political institutions (Badeeb et al, 2017)
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