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Natural resources exploration, efficiency of energy resources and financial development: Resources sector analysis via least square with structural breaks

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  • Zhang, Meng-Chen
  • Lin, Chun-Yu
  • Wei, Ying

Abstract

The financial system in a country is strengthened and reinforced by the presence of natural resources, which serve as a vital catalyst for economic growth and contribute to the overall progress of the financial sector. Therefore, we have examined the interconnections between resource finance, energy efficiency, and economic growth in the context of OECD economies from 1984 to 2021. To analyze these relationships, we have employed various time series methods. To begin with, we used the ADF-GLS test to check for unit roots in the occurrence of structural breaks. This helped us determine the stationarity of the modeled variables. The Bayer-Hanck test was also employed to investigate long-term equillibrium among the variables. We utilized the FMOLS, DOLS, and CCR approaches to examine the elasticities between the variables in the long run. These methods enabled us to accurately estimate the linkage between resource finance, energy efficiency, and economic expansion. To ensure the robustness of our estimates, we employed parametric approaches such as least squares with structural breaks for GDP and robust least squares without structural breaks. These tests helped validate the stability of our findings under different conditions. The results of our analysis revealed that the modeled variables, along with structural breaks, exhibited stationarity at D(1), indicating a stable long-term relationship. We also initiate indication of long-term cointegration among the variables. The outcomes obtained from our primary methods revealed asymmetric results. Specifically, we discovered that mineral rents contribute positively to financial development, while natural gas rents have a negative influence. Moreover, economic growth was found to have a significant and positive influence on financial development, while energy efficiency have an unfavorable effect. Both parametric tests yielded similar robustness checks, further strengthening the validity of our findings. Based on these results, we recommend that natural resource policies, especially those related to natural gas rents, should prioritize promoting energy efficiency, mineral rents, and economic expansion to foster financial development.

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  • Zhang, Meng-Chen & Lin, Chun-Yu & Wei, Ying, 2023. "Natural resources exploration, efficiency of energy resources and financial development: Resources sector analysis via least square with structural breaks," Resources Policy, Elsevier, vol. 85(PA).
    • Handle: RePEc:eee:jrpoli:v:85:y:2023:i:pa:s0301420723007213
    DOI: 10.1016/j.resourpol.2023.104010
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