Revisiting the natural resources-financial development nexus in China: The importance of economic policy uncertainty

Abstract

The existing literature extensively probes how natural resources impact financial development, however, there is no evidence on the role of economic policy uncertainty amidst the natural resources-financial development nexus. Moreover, the prior literature ignores the effect of structural breaks while estimating the parameters. Based on such arguments, this study investigates the combine impact of natural resources and economic policy uncertainty on financial development in case of China for the period of 1989–2021. In doing so, we apply noval econometric approach which handles the structural breaks named as Fourier Autoregressive Distributed Lag (FARDL) aaproach. Our findings show that natural resources escalate financial development, however, the synergy of natural resources and economic policy uncertainty plunges financial development across the long-run and short-run. Further, we run sensitivity analysis and find the results similar to the baseline outcomes. The results compel us to suggest some policy recommendations. For instance, policymakers should strive to control economic policy uncertainty in China for the promotion of financial development.