Resources Policy 66 (2020) 101641

Contents lists available at ScienceDirect

Resources Policy
journal homepage: http://www.elsevier.com/locate/resourpol

Natural resources rents nexus with financial development in the presence of

globalization: Is the “resource curse” exist or myth?
Jialin Guan a, Dervis Kirikkaleli b, Ayesha Bibi c, Weike Zhang d, *
a
College of International Economics and Trade, Jilin University of Finance and Economics, Changchun, Jilin Province, 130117, China
b
European University of Lefke, Faculty of Economic and Administrative Science, Department of Banking and Finance, Lefke, Northern Cyprus, TR-10, Mersin, Turkey
c
School of Economics, Qingdao University, Qingdao, Shandong Province, 266000, China
d
School of Public Administration, Sichuan University, Chengdu, Sichuan Province, 610064, China

A R T I C L E I N F O A B S T R A C T

Keywords: In order to promote economic activity, a country needs a productive and sound financial structure and financial
Financial development development as a backbone of the economic development of the country. Our study thus aims to investigate the
Natural resources rents “resource curse” hypothesis in the presence of globalization, human capital, and economic growth in China
Globalization
during the period 1971–2017. Within a multivariate framework, we provide more rigorous analysis through
Human capital
Economic growth
several econometric methods, for instance, the Bayer and Hanck cointegration, the Autoregressive Distributed
China Lag (ARDL), robustness check by fully modified ordinary least squares (FMOLS), dynamic ordinary least squares
(DOLS), canonical cointegrating regression (CCR), and Breitung-Candelon spectral Granger causality testing. Our
findings show that the effect of natural resources on financial development is negative and confirm China’s
resources curse hypothesis, while globalization, human capital, and economic development lead to improving
the financial development of the country. The causality analysis reveals that natural resources, human capital,
and economic growth have a long-term relationship with financial development, while globalization short and
medium-term linked with financial development. In order to promote financial sector development, our
empirical outcomes have significant policy implications that highlight the need to encourage globalization and
the development of human capital to ensure the effective management of natural resources.

1. Introduction
The financial and resource market is highly competitive and is at risk
of resource scarcity and optimum use. Natural resources are the assets of
countries that lead to the development of their economies. Conversely,
they create a challenging atmosphere for financial development under
certain conditions. However, several nations, such as the Middle East,
Africa, and Latin America, which are rich in natural resources in recent
times, are lagging behind other less natural resource countries for eco­
nomic growth (Badeeb et al., 2017). Some empirical evidence has shown
the reduced level of financial development for the majority of
resource-dependent countries (Sachs and Warner, 2001; Mehlum et al.,
2006; Frankel, 2012; Zhang et al., 2018). The resource curse theory
explains why countries with abundant natural resources tend to fail
economically. A stable and efficient financial system is needed to stim­
ulate economic growth and use natural resources efficiently (Pradhan
et al., 2016). Financial development plays a vital role in achieving
greater economic prosperity (Zaidi et al., 2019; Nawaz et al., 2019).
Stability in financial indicators can be achieved with stabilization and
creation of creating credit circulation, net interest margins, commercial
banking assets, while controls over corruption, the rule of law and po­
litical stability can be achieved by using natural resources to make high
economic rents (Dwumfour and Ntow-Gyamfi, 2018).
China’s choice depends on the fact that the most abundant natural
resources and, until now, studies in this field have been sparse. China
has the most abundant natural resources, with a population of 1.435
billion and GDP per capita of 10,276 US Dollars in 2019. After China’s
economic reforms in 1978, the economy has gradually moved from a
command economy to a market economy, with an average annual
growth rate of 10 percent. Nevertheless, China’s economic growth fell
from 14.20% in 2007 to 6.10% in 2019 since the global financial crisis of
2007–2008, with an expected decline to 5.5% in 2024 (Del Rio Lopez
and Gordo Mora, 2019). The natural resources of China range from
fishing to minerals, seas, and rivers. China’s abundant natural resources

* Corresponding author.
E-mail addresses: 106022@jlufe.edu.cn (J. Guan), dkirikkaleli@eul.edu.tr (D. Kirikkaleli), ayesharao6@yahoo.com (A. Bibi), zhangwk@scu.edu.cn (W. Zhang).

https://doi.org/10.1016/j.resourpol.2020.101641
Received 31 January 2020; Received in revised form 18 February 2020; Accepted 24 February 2020
0301-4207/© 2020 Elsevier Ltd. All rights reserved.
J. Guan et al.
continue to face the challenge of large populations and unequal distri­
bution of these resources. It is estimated that the total value of natural
resources in China are over 23 billion US Dollars.
Natural resources rents are not a detrimental consideration. Different
components enable us to reap the benefits of natural resources that
successful for countries such as Norway, and Botswana converted into
blessing the resource curse. The potential negative impact and sufficient
rental income can be accomplished by strengthening economic and
management structures (Boschini et al., 2007). Thus, the developed
financial institutions are one way of boosting economic growth and
escaping the resource rent curse (Shahbaz et al., 2018a,b). The negative
relationship between natural resource abundance and financial devel­
opment is already recognized (Cordon and Neary, 1982; Elbadawi and
Soto, 2016; Asif et al., 2020), but some studies contradict findings (Sachs
and Warner, 1995; Gylfason, 2001; Auty, 2001; Shahbaz et al., 2019).
Therefore, this analysis provides a crucial policy guideline on the
effective utilization of natural resources for the financial development of
the country and, at the same time, gives a valuable lesson from the
global perspective.
In 2001, after decades of negotiation, China joined the World Trade
Organization, which allowed China to remove most of its trade barriers
and become more globalized. Globalization, which is characterized by
reduced obstacles to goods, individuals, capital, and technologies across
boundaries, is the key to determining economic development and the
future of the planet (Intriligator, 2004). Globalization is a way of
exchanging goods, resources, and skilled workers among countries.
Improved human movement brings benefits, both employees and
recipient nations and countries can specialize in producing products
with comparative advantages (Mishkin, 2009). Opening borders for
transfer goods and resources improves the domestic institution’s fi­
nances and efficiency, while internationalization to other economic
systems on local financial markets in foreign and regional countries
promotes financial development (Hatemi-J and Shamsuddin, 2016). In
particular, by opening up their local markets to imports, developing
countries can fuel institutional growth. Though, in a new chapter, an­
alysts and policymakers explored the degree to which globalization is
currently a useful financial development tool. The resource curse can
only transform into resource blessing and the substantial gains of
globalization when skilled human capital plays a vital role in enhancing
financial development (Zaidi et al., 2019). Human capital has been
widely studied concerning economic growth based on the years of ed­
ucation and the returns to education, but it has mostly been ignored for
the connection with financial development.
This paper contributes in four ways to the latest literature based on
the debate. First, as the prospective determinant of financial develop­
ment, include the globalization index (economic, social, and political)
developed by Dreher (2006) and revisited by Gygli et al. (2019) and
human capital index constructed by Penn World Tables 9.1 (2019). That
is, we explore the relationship between natural resources rents and
financial development by important endogenizing variables such as
globalization, human development and economic growth by using data
from 1971–2017 in China. Second, we apply a more efficient technique
of cointegration Bayer and Hanck (2013), and its unique feature is that
the results of various individual cointegration tests can be combined to
produce a more conclusive result. The ARDL bounds test is applied be­
tween the financial development and selected variables to verify the
robustness for long term equilibrium.
Third, the fully modified OLS (FMOLS), dynamic ordinary least
squares (DOLS), and canonical cointegration regression (CCR) tech­
niques are also used to support long-term numerical estimates derived
from the estimation of the ARDL model. These methods have different
advantages and eliminate the endogenous problem of regressors, a by-
product of cointegration. These approaches reduce the issues of the
long-term correlation between the cointegration equation and stochastic
regression and asymptotically neutral with a fully capable asymptotic
mixture. In general, the presence of a positive or negative relationship
2
Resources Policy 66 (2020) 101641
between variables is observed and offered as consideration for policy­
makers and government officials to mitigate financial development in
China. Fourth, this is the first work, to the best knowledge of authors, to
investigate causation using the spectral Granger causality approach
based on Breitung and Candelon (2006). The test splits Granger’s causal
patterns for time-to-spectrum phases, which can be related to short,
medium, and long-term causality. The findings show meaningful
long-term relationships between variables of the study that require
detailed policies. This research also provides practical governance
guidance for policymakers to use natural resources more effectively as a
blessing instead of a curse.
The rest of the paper consists of five different sections: Section 2
reviews of previous studies. Section 3 outlines the methods used for
research. Section 4 provides the econometric strategy. Section 5 dis­
cusses the empirical results, and Section 6 concludes and addresses
policy implications.
2. Literature review
A review of the current relevant literature is carried out in three
parts. We review the studies on the nexus between natural resources
rents and financial development first, and then the nexus between
globalization and financial development reviewed. Finally, we review
the nexus between human capital and financial development.
2.1. Nexus between natural resources rents and financial development
The academic literature has concentrated primarily on a positive
connection between natural resources and development until the 1980s
(Rostow, 1961; Balassa, 1980). This positive approach was gradually
challenged, and by the early 1990s, Sachs and Warner (1995) reported a
“resource curse”. This revealed that resource-based economies have a
negative relationship with development and further reinforced
“resource-curse thesis” by Auty and Warhurst (1993). Countries with
abundant natural resources, rather than turning them into produced
goods, increase exports of these natural resources (Sachs and Warner,
2001; Dwumfour and Ntow-Gyamfi, 2018). Empirical studies offer to
policymakers unclear outcomes in using natural resources to stimulate
economic and financial growth. Overall, the literature shows that in
many developing countries, the abundance of natural resources has
negative consequences on financial development (Asif et al., 2020),
while in high-income countries it is positive (Shahbaz et al., 2018a,b).
Dwumfour and Ntow-Gyamfi (2018) found that in 38 African
countries for 2000–2012, natural resources rents have an unclear impact
on financial development. Shahbaz et al. (2018a,b) argued that the
United States economy has taken over its abundance of resources to
promote financial development through the dissemination of knowledge
and the continued economic growth of the country. The study concludes
that the optimum use of natural resources in a rational way to support
capital markets that can be used as an instrument of strategy for
financial development even under the global financial crisis. Gokme­
noglu and Rustamov (2019) analyzed the influence of natural resources
on financial development and found how the abundance of natural re­
sources has facilitated financial development in Russia, Turkmenistan,
Kazakhstan, and Azerbaijan, from 1992 to 2017. Most recently, Asif
et al. (2020) have used the data from 1987 to 2017 in China, and the
findings have shown that the effect of natural resources rents on
financial development is negative. Studies on the relationship between
the abundance of natural resources and financial progress tend to be
inconsistent, so further research required, including potential factors
such as globalization, human capital, and economic growth.
2.2. Nexus between globalization and financial development
Globalization gives advantages of openness and helps to reduce
downside risks in a country (Stiglitz, 2004). Thus globalization, as a
J. Guan et al.
significant stimulator for economic growth, is higher in higher global­
ized economies as they are most likely to maintain stable rates of growth
(Dreher, 2006). Mishkin (2009) affirmed that globalization supports the
institution of the economy and results in financial development and
economic growth, and he was instrumental in the pioneering work in
this regard. Demetriades and Law (2006), like Mishkin’s base, indicated
that the opening-up of trade is putting pressure on the creation of
financial institutions, increasing the growth of middle-income countries.
Tovar García (2012) reported that globalization contributes to financial
development and its ultimate growth. While some scholars hold
different views. For example, Shahbaz et al. (2017) examined the rela­
tionship between globalization and financial development in India and
found that globalization weakens financial development. Zaidi et al.
(2019) analyzed using the panel data on OECD countries from 1990 to
2016 period of natural resources, economic growth, human capital and
globalization on financial development and found that financial devel­
opment is positively influenced by economic growth, capital formation,
globalization, natural resources, and human capital.
2.3. Nexus between human capital and financial development
Human capital also an essential factor for financial development and
can convert natural resources into other long-term oriented industries,
which can turn the curse of resources-rich countries into a blessing.
Bravo-Ortega and De Gregorio (2005) showed, in the Scandinavian
countries, that the disproportionate influence of natural resources can
only be surpassed by increased investment in skilled and trained human
capital. The crowding-out impact of experiments in different countries
has been confirmed by Behbudi et al. (2010). The main argument is that
investment by countries on human capital that is rich in natural re­
sources does not produce the anticipated return in terms of the increased
wages, and therefore people in these countries are losing interest in
education. Marchand and Weber (2015) reported that in Texas, high
salaries attract private industry students and even teachers. Sibel et al.
(2015) noted that human capital is a significant contributor to Turkish
financial development. Likewise, Rickman et al. (2017) found that in the
presence of an abundance of resources, higher education can build an
environment of better growth. Most recently, Khan et al. (2020) exam­
ined that human capital affects financial development positively in
China.
The introduction of globalization and human capital, based on the
previous research, can also lead to new paths for financial development
and can help turn the curse into a blessing. Extensive analysis of existing
literature on the relationship between the abundance of resources and
financial development reveals that most recent studies were conducted
in the U.S. and African contexts. Nonetheless, the role of human capital
and its contribution to financial development are little illustrated
empirically. The Chinese, with 20 percent of the world population, is a
significant source of human capital and thus a fitting backdrop for the
analysis of these ties. Empirical research in the presence of human
capital using data from Penn World Tables 9.1 may produce new insights
into the nexus between the abundance of natural resources and financial
development.
3. Theoretical framework, empirical modeling, and data
collection
In the existence of globalization, human capital, and economic
growth, this study examines the nexus between natural resources and
financial development. Financial development is determined by natural
resources, globalization, and human capital, which, in turn, affects
economic growth (Ibrahim and Alagidede, 2018; Nawaz et al., 2019; Yu
et al., 2020). An advanced financial system would allow an economy to
improve economic growth by compensating for the negative effect of the
abundance of natural resources on economic growth. Sound financial
industries distribute natural resource wealth for productive investment
3
Resources Policy 66 (2020) 101641
projects that fuel economic growth (Shahbaz et al., 2018a,b). Natural
resources can be the engine of development and growth, rather than the
sole cause of growth (Badeeb et al., 2017; Sinha and Sengupta, 2019).
However, globalization and human capital play a key role in enhancing
financial growth by making effective use of natural resources (Tiba and
Frikha, 2019; Zaidi et al., 2019).
In the case of globalization, the economies will react in two ways:
either through the smooth export of natural resources and the accu­
mulation of rents, or the institutionalization of conserving natural re­
sources for the country’s sustainable development through the creation
of endogenous skills and jobs for educated peoples. Human capital
contributes to the efficient use of natural resources and the stability and
economic growth of the financial system (Becker, 2009; Zaidi et al.,
2019). In contrast to unskilled and uneducated people, educated in­
vestors and professional entrepreneurs can use financial resources
effectively (Pirlogea, 2012; Hatemi-J and Shamsuddin, 2016). Thus, the
influence of natural resource rents on financial development could be
assumed to turn in the existence of globalization, human capital, and
economic growth.
In the above debate, a changed framework is developed to examine
the impact of the natural resources rents on financial development in
China by introducing globalization, human capital, and economic
growth. The form of the demand function in Eq. (1) is as follows:
FDt ¼ f ðNRRt ，GIt ，HCIt ，RGDPt Þ (1)
where FDt indicates financial development which is measured by do­
mestic credit provided to the private sector (% of GDP) (Gokmenoglu
and Rustamov, 2019; Pan et al., 2019); NRRt represents natural resource
rent indicated by the total rents of natural resources (% of GDP) (Zaidi
et al., 2019); GIt is globalization measured by globalization index
(economic, social, and political) (Shahbaz et al., 2017; Zaidi et al.,
2019); HCIt indicates human capital measured by human capital index
(Feenstra et al., 2015; Han and Lee, 2020); and RGDPt represents eco­
nomic growth measured by real GDP (constant 2010 prices). This study
uses data from 1971 to 2017 collected from World Development In­
dicators, KOF Swiss Economic Institute database, and Penn World Ta­
bles 9.1. All the variables are taken for analysis in a natural-log form
(Shahbaz et al., 2018a,b) as the log-linear model produces consistent
outcomes between dependent and independent variables. The empirical
equation of finance demand function is modeled in Eq. (2) as follows:
ln FDt ¼ β0 þ β1 ln NRRt þ β2 ln GIt þ β3 ln HCIt þ β4 ln RGDPt þ εt (2)
where FDt is financial development; β0 is the intercept; t is the time
period (1971–2017); β1, β2, β3, and β4 are the parameters of natural
resources rents (NRRt), globalization (GIt), human capital index (HCIt),
and economic growth (RGDPt); and εt is the error term.
4. Econometric strategy
4.1. Stationary test
It is essential to determine the order of integration by checking the
stationarity of the series before a cointegration test is carried out based
on estimated variables in the model. The Ng and Perron (2001) tests are
applied because modified information criteria (MIC), combined with
generalized least-square (GLS), provide desirable sizes and predictive
power properties to the tests. The proposed test includes a series of four
tests, MZa, MZt, MSB, and MPT, respectively.
4.2. Cointegration test
4.2.1. Bayer-Hanck cointegration approach
Bayer and Hanck (2013) has performed a more recent test for the
existence of cointegration among the variables selected for the study.
Such measures include the research results of Engle and Granger (1987)
J. Guan et al. Resources Policy 66 (2020) 101641

(EG), Johansen (1991) (JOH), Boswijk (1994) (BO), as well as the
Banerjee et al. (1998) (BDM) on early approaches. The series must
integrate into order one, I(1) for the use of the joint integration process
of Bayer and Hanck. If the critical value is less than the F-statistic
measured, we can deny null values without cointegration. The equation
used by Fisher for the cointegration of Bayer and Hanck as follows:
Cumulative Sum Squares (CUSUMsq) tests are used to determine the
stability of the model. In the analysis, the direction of the causal relation
is also examined through the causality test between the variables.
4.3. Robustness check

EG JOH ¼ 2½lnðPEG Þ þ lnðPJOH Þ� (3) Upon confirmation of the cointegration relationships, explanatory
variables can be calculated using the FMOLS, DOLS, and CCR methods
EG JOH BO BDM ¼ 2½lnðPEG Þ þ lnðPJOH Þ þ lnðPBO Þ þ lnðPBDM Þ�
proposed by Phillips and Hansen (1990), Stock and Watson (1993), and
(4) Park (1992). All three methods employ different corrective mechanisms
P values of different cointegration tests can obtain according to the except the bias and non-centrality of the second order. Asymptotically,
above Eqs. (3) and (4). The cointegration of time series variables is however, they offer the same estimates. It is, therefore, logical to use it
verified using F-statistic. If Bayer and Hanck’s critical range is less than as an additional robustness check. In the calculation of the function, the
F-statistic, then we accept the time-series cointegration and reject a null FMOLS corrects all genetic factors and projections, while the CCR only
hypothesis and vice versa. corrects data and selects relationships that represent the correct ca­
nonical class relation. Conversely, dynamic OLS contains abbreviation
4.2.2. The ARDL bound test estimation parameters that correct second-order bias and non-systemic bias. A vital
After confirming cointegration among all selected variables, the feature of these methods is their application to both stationary and
Bounds testing method is used for checking the accuracy and reliability non-stationary variables. There is no consensus on which methods are
of the findings in the case of structural breaks. This study adopts the consistently better, so we implement different methods and compare the
ARDL approach due to three benefits that make it better than other results. The results obtained for these empirical methods are presented
conventional methods: (1) It is not necessary to integrate the underlying in the following section.
variables in the same order (Kirikkaleli, 2018; Yasmeen et al., 2019), (2)
A relatively small sample can be applied (Pesaran et al., 2001), and (3)
Both short and long term variable dynamics can be recorded (Shahbaz 4.4. Causality analysis in the frequency domain
et al., 2018a,b). This method transforms a linear dynamic of unrestricted
error model without losing any long-term association (Pesaran et al., As a final step, Breitung and Candelon (2006) has carried out a fre­
2001). The ARDL cointegration equation is as follows: quency domain causality test based on early work in the methodology of
Geweke, (1982) and Hosoya, (1991), and the study is known as the
Δ ln FDt ¼ β0 þ βFD ln FDt 1 þ βNRR ln NRRt þ βGI ln GIt 1
1 “spectral BC causality test”. The approach “time domain” informs us
when changes in a particular series happen, and the approach “fre­
Xp
þβHCI ln HCIt þ βRGDP ln RGDPt 1 þ βh Δln FDt
quency domain” calculates the degree of change in the time series given.
1 h
h¼1
p
X p
X p
X The seasonal pattern can be important in a short series of studies, which
þ βi Δln NRRt i þ βj Δln GIt j þ βk Δln HCIt k can be eliminated by the field of frequency. However, the approach to
i¼1 j¼1 k¼1 the frequency domain enables us to track nonlinearities and causality
p
X cycles, i.e., high or low frequencies causalities. We use the Breitung and
þ βl Δln RGDPt l þ εt
l¼1
Candelon (2006) test protocol as follows for determining the causality of
(5) NRR, GI, HCI, and RGDP to FD in China at different frequencies, which
can be described as follows.
From Eq. (5) above, Δ denotes the operator of the first differences, If a two-dimensional time series vector as rt ¼ [ pt, qt ]’, as noted in t
while ε represents the normal distribution of the error term. The null ¼ 1, …, T can be defined as its finite order VAR in Eq. (8):
hypothesis defined under the assumption that the series is not cointe­
grated with their alternative cointegration relationship is mentioned in εt ¼ ΘðLÞrt (8)
Eq. (6) as follow:
where ΘðLÞ ¼ I Θ1 L … Θp Lp is a 2 � 2 lag polynomial with
H0 ¼ βFD ¼ βNRR ¼ βGI ¼ βHCI ¼ βRGDP ¼ 0
(6) Lk rt ¼ rt k . The error term vector εt implicitly contains white noise with
H1 6¼ βFD 6¼ βNRR 6¼ βGI 6¼ βHCI 6¼ βRGDP 6¼ 0 �
Eðεt Þ ¼ 0 and E εt ε’t ¼ Σ, where Σ is positive definite. In order to
If calculated F-statistics exceed the upper-level, the hypothesis of no facilitate disclosure, we disregard all deterministic words in Eq. (8),
cointegration between variables exists. The next step includes calcu­ even though the model usually contains a constant, trend, or dummy
lating long-run parameters with the ARDL model in conjunction with the variable in empirical applications (Breitung and Candelon, 2006). In
Akaike information criterion (AIC), R-square (R2), and the F-Statistics. Cholesky decomposition G’ G ¼ Σ 1 , lower triangular matrix be G such
�
In the final step, the study estimates the ECM presented in Eq. (7) to that E ηt η’t ¼ I and ηt ¼ Gεt . The MA illustration can be expressed as Eq.
capture the short-run results of variables. (9) if the time series is stationary.
p
X p
X p
X � �� �
Δ ln FDt ¼ β0 þ βh Δln FDt i þ βl Δln NRRt i þ βj Δln GIt
Φ11 ðLÞ Φ12 ðLÞ ε1t
i rt ¼ ΦðLÞεt ¼ ¼ Ψ ðLÞηt
Φ21 ðLÞ Φ22 ðLÞ ε2t
(7)
i¼1 i¼1 i¼1
p p � �� �
X X Ψ 11 ðLÞ Ψ 12 ðLÞ η1t
þ βk Δln HCIt i þ βi Δln RGDPt i þ θECTt i þ εt ¼ (9)
i¼1 i¼1
Ψ 21 ðLÞ Ψ 22 ðLÞ η2t

where the ECTt-i is the error correction term, after a short-run shock, and where ΦðLÞ ¼ ΘðLÞ 1 and Ψ ðLÞ ¼ ΦðLÞG 1 . The spectral density of pt
reflects the long-run change equilibrium rate. Remember that the coef­ based on this representation can be expressed as in Eq. (10):
ficient for ECTt-i should be negative and statistically significant to ensure
1 n�� ��2 � ��2 o
that the dynamics reconcile to the long-run equilibrium (Kalmaz and fp ðωÞ ¼ Ψ 11 e iω � þ �Ψ 12 e iω � (10)
2π
Kirikkaleli, 2019). Diagnostic tests of heteroscedasticity and autocor­
relation are used for normality. Cumulative Sum (CUSUM) and In fact, the causality calculation of Geweke (1982) is defined as in Eq.
(11):

4
J. Guan et al. Resources Policy 66 (2020) 101641

" # � �
2πfp ðωÞ � jΨ 12 ðe iω 2 �
Þj � Table 2
�
Mq→p ðωÞ ¼ log ¼ log�1 þ � (11) Unit root test results with a structural break (Zivot and Andrews, 1992).
jΨ 11 ðe iω Þj2 � jΨ 11 ðe iω Þj2 �

Variables Zivot and Andrews

2
Thus, the Geweke measure of causality will be zero if jΨ 12 ðe iω Þj ¼ Level Break year 1st diff Break year Decision
0, and thus, q does not cause p at frequency ω.
FDt 4.447 1984 7.186*** 1988 I(1)
Breitung and Candelon (2006) formalizes these equations and re­ NRRt 4.148 2004 6.778*** 1999 I(I)
quirements by imposing linear constraints upon the ratios of the first GIt 2.719 2010 4.872* 2008 I(1)
part of the VAR model, and it is defined in Eq. (12) as below: HCIt 4.514 1991 6.841*** 2001 I(1)
RGDPt 3.350 2006 5.409*** 2009 I(1)
pt ¼ α 1 p t þ ::: þ αi pt i þ β1 qt þ ::: þ βi qt i þ ε1t (12)
Significance of critical value 1% 5% 10%
1 1

5.57 5.08 4.82

where α and β are lag polynomial coefficients.
The null hypothesis Mq→p(ω) ¼ 0 leads to the linear restriction in Eq. Notes: ***, ** and * denote statistical significance at 1%, 5% and 10% levels,
(13): respectively.

Hο : RðωÞβ ¼ 0 (13) that were severely affected by the global financial crisis. According to
the IMF World Economic Outlook (2010), China’s economic growth was
where β ¼ [β1,. . . , βi] is the coefficients vector of q, and R(ω) is written
severely affected by the global financial crisis.
in Eq. (14):
As all variables are integrated into an order I(1), Bayer and Hanck
� �
cosðωÞ cosð2ωÞ ::: cosðiωÞ (2013) test is suitable for determining long-term relations between
RðωÞ ¼ (14)
sinðωÞ sinð2ωÞ ::: sinðiωÞ variables. The F-statistics reported in Table 3 are higher than the critical
values in specified models for integrated cointegration at a 5% signifi­
The standard F statistic of Eq. (14), where 2 is the number of re­
cance level. Therefore, we can find a long-term relationship and reject
strictions, is distributed by the F(2, T 2i) for ω 2 (0, π), with T being the the null-hypothesis of no cointegration among FD, NRR, GI, HCI, and
number of observes for estimation of the VAR model p (Breitung and
RGDP. These results are consistent with Shahbaz et al. (2018a,b).
Candelon, 2006). The Bayer and Hanck (2013) tests are beneficial, but the structural
breaks are not considered. The ARDL bounds test method also ensures
5. Results and discussion accuracy and stable cointegration results, mainly if the structural break
occurs. Concerning the effects of the ARDL cointegration, as mentioned
The present study aims to explore the causal and long-term effects of in Table 4, a measured F-statistics of 10%, 5%, 2.5%, and 1% is higher
natural resources rents, globalization, human capital, and economic
than the upper critical point. Therefore, the null hypothesis that FD,
growth on financial development using the combined cointegration, NRR, GI, HCI, and RGDP cannot cointegrate rejected and affirm that the
ARDL bounds cointegration test, FMOLS, DOLS, CCR, and Breitung-
variables have a long-term relationship in China. This shows the
Candelon spectral Granger causality in China, and initial tests per­ robustness of the empirical findings by Bayer and Hanck and the ARDL
formed using the Ng and Perron (2001) in Table 1 to evaluate the time
bounds test.
series variables integration and Zivot and Andrews (1992) unit root test Next, we are evaluating the effect on FD by independent variables
reported the result with an unknown structural break in Table 2. The
and results showed in Table 5. The ECM coefficient calculated ( 0.629)
conventional root unit reveals that, after the first difference of variables, is negative and indicates a long-term relationship between variables at a
FD, NRR, GI, HCI, and RGDP are stationary. The findings of tests carried
significant 1% level and confirmed the results of the cointegration by
out by Zivot and Andrews (1992) show that logarithmic forms of vari­ both tests. Natural resources rents have a significant adverse effect on
ables stationary after first differentiation with single structural breaks.
financial development, both in the long-term and short-term. Financial
The breaks in the results reveal key events in the development and development decreases by about 0.158% in the long term for each 1%
accurately show the period of China’s economic policy reform. In the
increase in natural resources rent. In the short term, financial develop­
1980s and 1990s, China’s financial development and growth strategy ment declines by about 0.131% with the impact of each 1% increase in
were to attract foreign direct investment into China to enhance the
natural resources rents, and the findings are significant at a 1% level.
country’s economy (Morrison, 2013). China joined the WTO in This outcome suggests that the resource curse exists in China, which is in
December 2001, which helped improve its financial institutions (Allen
line with Yuxiang and Chen (2011), Wang et al. (2019) , and Asif et al.
et al., 2007). The break dates in the 2000s period indicate the global (2020). The resource curse may arise because of the rise in natural
slump due to the financial crisis. The Chinese economy is amongst those
resource exports and the development in resource sectors, leading to
insufficient investment in manufacturing (Zhang and Brouwer, 2019).
Other possible reasons for the resource curse in China are primarily
Table 1
Unit root tests results (NG and Perron). because of the inefficient use of resources and single industries, partic­
ularly in regions rich in resources.
FDt NRRt GIt HCIt RGDPt
The relation between globalization and financial development sta­
Panel A: Unit-root tests in levels tistically positive and findings indicate globalization leads to financial
MZa 11.551 3.576 1.884 4.349 11.084 development. If globalization rise by 1%, financial development grows
MZt 2.395 1.233 0.865 1.450 2.353 by 0.018%–0.114% over the short to long run and outcomes are sig­
MSB 0.207 0.344 0.459 0.333 0.212 nificant at a 1% level. Similar results found in a study of Shahbaz et al.
MPT 7.927 23.794 41.336 20.734 8.223
(2017) and Zaidi et al. (2019) who support globalization enhance
Panel B: Unit-root test in first differences financial development. Based on our results, the effects of human capital
MZa 27.458** 22.010** 21.859** 26.267** 20.057** are positive on financial development in the long-term, but in the
MZt 3.674** 3.298** 3.302** 3.610** 3.123** short-term, insignificant. If human capital increase by 1% then financial
MSB 0.133** 0.149** 0.151** 0.137** 0.155**
development rise by 1.790% and these results consistent with Hatemi-J
MPT 3.495** 4.252** 4.190** 3.549** 4.803**
Decision I(1) I(1) I(1) I(1) I(1)
and Shamsuddin (2016), Ibrahim and Sare, (2018), Zafar et al. (2019),
and Zaidi et al. (2019) who acknowledged that education contributes to
Notes: ***, ** and * denote statistical significance at 1%, 5% and 10% levels, financial growth through enhanced human capital skills. Human capital
respectively.

5
J. Guan et al. Resources Policy 66 (2020) 101641

Table 3
Bayer-Hanch cointegration test results.
Model specification F-statistics 5% Critical value F-statistics 5% Critical value Cointegration decision

EG-JOH EG-JOH-BAN-BOS
FDt ¼ fðNRRt ; GIt ; HCIt ; RGDPt Þ 14.980 10.576 23.625 20.143 Yes

statistics for CUSUM and its squares are within critical limits.
Table 4
Table 7 shows the results of the regression by FMOLS, DOLS, and
ARDL Bounds test results for cointegration.
CCR. As in Table 7, the ARDL approach’s long-term estimations agree
ARDL estimated Optimal lag Structural F- Cointegration with the results of FMOLS, DOLS, and CCR, because the indications of all
model selection break statistics decision
the variables are similar. The results obtained from these alternative
FDt¼f(NRRt, GIt, (1, 1, 1, 4, 1984 17.331*** Yes approaches thus support the previous results produced using the ARDL
HCIt, RGDPt) 0)
bounds test method and allow us to determine the robustness of our
Significance of 1% 2.50% 5% 10%
critical value long-term results through different measurement techniques.
Lower Bound I(0) 3.29 2.88 2.56 2.2 Also, robustness controls offered by introducing a causality fre­
Upper Bound I(1) 4.37 3.87 3.49 3.09 quency causality method from Breitung and Candelon (2006). Unlike
Notes: *** denotes statistical significance at 1% level. conventional time-domain causality, which describes the relationship
between the variables of the fixed coefficient constant estimation at all
frequencies, the Breitung and Candelon (2006) spectral causality
Table 5 approach assumes that the sensitivity of a variable to a temporary
ARDL long run and short-run coefficient results. high-frequency shock in another variable is not the same as a permanent
Regressor Coefficient Standard error t-value low-frequency shock. With this approach, we can analyze causality test
statistics at different frequencies. Fig. 2 shows the results for the whole
Dependent Variable: FDt
period. The occurrence of the relationship between these variables
Panel A: Long run coefficients investigated at frequencies 2–3, 1–2, and 0–1. These frequencies show a
NRRt 0.158*** 0.024 6.567
short, medium, and long-term relationship. At the same time, 0–1 is
GIt 0.114*** 0.043 2.650
HCIt 1.790*** 0.502 3.564 known as permanent causality, while 2–3 is known as temporary cau­
RGDPt 1.098*** 0.122 8.964 sality. Figs. 2–4 indicate that the (red) upper line and the (brownish)
C 1.588*** 0.211 7.521 lower line represent statistically significant levels of 5% and 10%,
Panel B: Short run coefficients
respectively. On the other hand, (bluish) curves used for statistical tests
ΔlnNRRt 0.131*** 0.015 8.521
ΔlnGIt 0.018*** 0.005 3.726
of various interval frequencies (0, π).
ΔlnHCIt 1.005 1.014 0.990 Fig. 2 shows the causality investigation, and reveales that there is a
ΔlnRGDPt 0.691*** 0.129 5.360 causal relationship running from NRR to FD in the long term. The null
ECMt-1 0.629*** 0.057 10.989 hypothesis of natural resources rents does not Granger-cause of financial
R2 0.752
development for frequencies of 0.8-0 at a significance level of 5% and
Adj R2 0.710
10%. They state that natural resources rents an impact on financial
Notes: ***, ** and * denote statistical significance at 1%, 5% and 10% levels, development in the long term, which means more attention to natural
respectively. resources utilization or extraction could contribute to the financial
system. Fig. 3 shows that the causal link in the frequency domain from
helps companies and individuals to use scarce resources better and GI to FD in short to medium term at a significance level of 5% and 10%.
improve the quality of production. Human capital supports the financial The null hypothesis of globalization does not Granger-cause of financial
system, raises living standards and stimulate economic growth through development for frequencies at 3-1.2. The causality from HCI to FD (in
innovative technologies and process development. Fig. 4) shows medium to long term cause and rejects the null hypothesis
Economic growth has a positive and significant effect on financial does not Granger-cause for frequencies of 1.4-0 at a significance level of
development both in the long-term and short-term. Our results show 5% and 10%. This result is not surprising because we have discussed in
that 1% of economic growth resulted in an increase of 1.098% of the literature about how human capital affects financial development.
financial development in the short term and 0.691% in the long-term, Most interestingly, Fig. 5 shows that RGDP test statistics are higher than
and this finding is aligned with Nawaz et al. (2019). It indicates that 5% significance level from short to long-term, which means that RGDP is
increasing economic activity creates jobs, increasing the wages of all the cause of financial development at frequencies from low to high.
sectors of the population. Therefore, consumption and investment From the frequency domain causality method, we can conclude that all
practices are growing under such conditions, boosting the market for long-term causality is the most evident except GI.
financial services and rising financial development.
Diagnostic tests in Table 6 show that there are no problems in the 6. Conclusions, suggestions, and limitations
series, serial correlation, error normality, and heteroskedasticity. Both
squared and adjusted R values indicate the results of the factors included 6.1. Conclusions
in the formula, about 75% of the variance in financial development by
the variables. CUSUM and square of CUSUM test for stability checks for This study aims to explore the relationship between the natural re­
the ARDL bounds test results also be performed. As shown in Fig. 1, the sources rents and financial development more deeply, methodically and
empirically, and contributes to the improvement of financial develop­
Table 6 ment policies in China. This study examines the effect of natural re­
Sensitivity tests. sources rents, globalization, human capital, and economic growth, on
financial development from 1971 to 2017. The empirical results provide
Test Normality Serial correlation ARCH CUSUM CUSUMsq
significant evidence that financial development and their determinants
F-statistics 0.750 1.964 0.957 Stable Stable are linked to the cointegration. The outcomes suggest the existence of
p-value 0.687 0.141 0.334
the resource curse in the case of China because natural resources rents

6
J. Guan et al. Resources Policy 66 (2020) 101641

20 1.4

15 1.2

1.0
10
0.8
5
0.6
0
0.4
-5
0.2
-10
0.0

-15 -0.2

-20 -0.4
16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 10 15 20 25 30 35 40 45

CUSUM 5% Significance CUSUM of Squares 5% Significance

Fig. 1. The tests for CUSUM and its squares.

Table 7
The FMOLS, DOLS, and CCR analysis.
Dependent variable: FDt

Variables FMOLS DOLS CCR

NRRt 0.113*** [-2.825] 0.152*** [-3.615] 0.127*** [-4.248]

GIt 0.094** [-2.184] 0.105** [2.397] 0.098** [1.894]
HCIt 0.972** [2.281] 0.977** [2.181] 1.049*** [2.714]
RGDPt 1.241*** [10.286] 1.260*** [9.741] 1.213*** [11.364]
C 7.424*** [-2.932] 7.713*** [-2.786] 6.899*** [-2.975]
R2 0.981 0.972 0.977
Adj. R2 0.972 0.968 0.965

Notes: The numbers in [ ] represent test statistics of the estimated coefficients. *** and ** denote statistical significance at 1% and 5% levels, respectively.
6

6
5

4
4

2
3
2

0 1 2 3 0 1 2 3
frequency frequency

Test Statistic 5% C.V. 10% C.V. Test Statistic 5% C.V. 10% C.V.

Fig. 2. Spectral BC causality from NRR to FD. Fig. 3. Spectral BC causality from GI to FD.

are empirically proved to be the main factors in the deterioration of the 6.2. Suggestions
financial development, as they lead to short and long-term financial
development. This study’s empirical results provide valued policy implications and
Moreover, globalization, human capital, and economic growth are suggestions as follows:
the leading factors that promote financial development. Robustness
check also shows inline results of all variables by FMOLS, DOLS, and (1) Natural resources represent the sovereignty of a country.
CCR. The causality analysis suggests that natural resources rents, human Through selling these products, more money can be obtained if
capital, and economic growth in the long-term cause financial devel­ these resources are used efficiently. Therefore, we propose that
opment, while globalization only causes financial development in the the abundance of natural resources for a more productive output
short and medium-run. Thus, we conclude that China’s financial factors should be revisited. Thus, the emphasis should be placed on the
contribute more internally than externally. An interesting result also development of supply and demand for natural resources to
comes from an autonomous term. The approximate coefficients are both achieve the goal of sustainability.
more dynamic, negative, and significant in both the short-term and the (2) In turn, a sound financial system decreases stakeholder volatility
long-term. This indicates that the policies of the Chinese government and strengthens the legitimacy of the government, thereby
and politicians are starting to have significant economic impacts. improving the beneficial effects of natural resources utilization
on economic growth and enhancing financial efficiency.

7
J. Guan et al. Resources Policy 66 (2020) 101641

6.3. Limitations
15

Our study is limited to focus on four variables effect on Chinese

financial development. Additional factors of financial development, for
example, energy consumption, research and development, trans­
portation infrastructure, financial globalization, and inflation may be
10

covered in future studies.

CRediT authorship contribution statement

5

Jialin Guan: Conceptualization, Funding acquisition, Investigation,

Supervision, Writing - original draft. Dervis Kirikkaleli: Formal anal­
ysis, Investigation, Methodology, Resources, Software, Validation,
Visualization, Writing - original draft. Ayesha Bibi: Data curation,
0

0 1 2 3
frequency Software. Weike Zhang: Conceptualization, Project administration,
Supervision, Writing - review & editing.
Test Statistic 5% C.V. 10% C.V.

Acknowledgements
Fig. 4. Spectral BC causality from HCI to FD.
The authors would like to acknowledge the financial support from
the Fundamental Research Funds for the Central Universities.
8

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