Natural resources led growth and the role of financial development: Evidence from Next-11 economies

Abstract

The contradictory literature concerning the impact of natural resources (NR) on economic growth (GDP) nurtures a new debate among scholars and policy-makers to examine the real impact of NR on the economy's growth. Therefore, this study aimed to analyze the specific influence of NR rents indicators on GDP in the Next-11 economies from 1990 to 2020. This study also tends to explore financial development's role in GDP. This study uses advanced panel data approaches such as panel cross-section dependence, slope coefficient heterogeneity, and cointegration estimators to achieve the stated objective. These estimators asserted the slope heterogeneity, presence of cross-section dependence, and the validity of cointegration between the variables. The mixed integrating order of variables led to adopting the third generation econometric approach – cross-sectionally augmented autoregressive distributed lags (CS-ARDL). The estimated results asserted that NR heterogeneously affects GDP, where natural gas rents enhance GDP, while oil rents and forest rents adversely affect the growth of the concerned economies. Also, financial development is found to be a significant and positive factor in GDP in the region. The estimated results are found robust and consistent by utilizing the mean group (MG) and augmented mean group (AMG) estimators. Following the outcomes, this study suggests efficient exploitation and utilization of NR, increased investment in the renewables sector, and financial sector development achieve sustainable GDP.