Understanding the dynamics of the resource curse and financial development in China? A novel evidence based on QARDL model

Abstract

This paper aims to examine the quantile behavior of the relationship between natural resource rent and financial development. Furthermore, gross domestic product, gross fixed capital formation, and trade openness are also under observation as explanatory variables for China's economy during 1981–2018. This research employs a recently developed quantile autoregressive distributed lag (QARDL) model of Cho et al.'s (2015) research. The present study contribution can be examined by applying QARDL as it depicts the causality patterns through a range of quantiles of natural resource rent and financial development along with other explanatory variables. The study findings confirm that the variable's relationship is quantile-dependent, highlighting the shortcomings of findings in earlier studies and providing meaningful contributions. Furthermore, the findings under Wald-test reject the parameter constancy for the Chinese economy. Additionally, our findings specified a resource curse hypothesis that shows that financial development is negatively and significantly affected by China's natural resource rent level. However, gross domestic product, gross capital formation, and trade openness are observed as positive financial development determinants during a similar study period. The study findings recommend that the Chinese government and policymakers lower the negative linkage between resource rent and financial development, specifically in the long-run.