Resources Policy 88 (2024) 104466

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

Are natural resources a driving force for financial development or a curse

for the economy? Policy insight from Next-11 countries
Huafang Huang a, b, *, Xianfu Cheng b, Liangli Wei a, Dongping Liu a, Minmin Deng a
a
College of Economics & Management, Hefei Normal University, Hefei, 230601, Anhui, China
b
School of Geography and Tourism, Anhui Normal University, Wuhu, 241002, Anhui, China

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

Keywords: This research examines the N-11 economies from 1990 to 2020 from the standpoint of the connection between
Curse natural resources and financial development, considering such control variables as energy consumption and FDI.
Oil rents This study further used Panel data, as well as the most appropriate method, such as Panel Quantile Regression
Driving force
(PQR) for a long-run connection, to examine the status of N-11 economies and track the dynamic interaction of
N-11 countries
several significant elements through time. Here are some of the most important model results: Panel cointe­
gration tests show that the variables in question are indeed related in the long run. Interestingly natural resources
like Oil rents reduce financial development while natural gas rents enhance financial development. The control
variables such as foreign direct investment (FDI) and energy use (ENR) increase financial development in the
targeted economies. Strong policy implications stem from our empirical findings, which stress the importance of
encouraging both energy use and foreign direct investment (FDI) for the efficient utilization and supervision of
natural resources in the service of financial development.

1. Introduction industries. Therefore, if the nation experiences financial development,

Nations globally are striving to achieve optimal financial growth,
recognizing its significance for both economic prosperity and the well-
being of their citizens (Dwyer, 2023). According to neoclassical eco­
nomics, capital formation as well as manpower are the main forces
behind economic dynamics in a nation. The abundance of natural re­
sources in a region plays a significant role in determining the economic
growth of a nation by affecting its financial dynamics (Li et al., 2022;
Stiglitz, 1974). According to these theories, a country that has an extra
substantial endowment of natural resources will certainly have an eco­
nomic advantage over nations that do not. In this approach, natural
resources are seen as beneficial by the nations because they assist with
resource generation, business benefits, and financial self-sufficiency. In
recent years, the economic role of natural resources has become highly
significant on a global scale. Likewise, natural resources give structure
because it is necessary for contemporary production for human life such
as water, minerals, oil, wood, and various other natural deposits. Even
so, the endowment of natural resources is reflected in the Dutch disease
theory, which contends that using natural deposits to drive economic
expansion can have a negative effect on the efficiency of different
its endowment of natural resources may prove to be beneficial. Rather, if
there is a negative correlation in between natural resources and financial
development, the advantage of natural resources turns into a curse for
financial development. For countries with abundant natural resources,
endowment benefits rather than hinders their development. For
instance, Norway is one of the most prosperous country in the world.
That is mostly a result of the region’s oil wealth. The existence of
priceless natural resources like diamonds also aided in the economies of
nations like Australia, South Africa, and Botswana to develop rapidly.
The relationship between natural resource availability and economic
development has been extensively researched theoretically and experi­
mentally. But the results of this research are still inconsistent, and it is
hard to draw any firm conclusions (see Figs. 1–3).
When government expenditure increases without a corresponding
increase in the money supply, higher interest rates will ensue, deterring
private sector investment if the money markets and commodity receipts
stay stable. In terms of the available resources, a resource-rich economy
may dampen enthusiasm for new financial sector research and devel­
opment. Dutch disease may increase demand for consumer credit if it
prompts more people to start using banks and other financial

* Corresponding author. College of Economics & Management, Hefei Normal University, Hefei, 230601, Anhui, China.
E-mail addresses: huanghf19910215@sina.com (H. Huang), xf990112@mail.ahnu.edu.cn (X. Cheng), weilianglihefei@163.com (L. Wei), dongpingl@hfnu.edu.cn
(D. Liu), minmindeng8383@163.com (M. Deng).

https://doi.org/10.1016/j.resourpol.2023.104466
Received 29 May 2023; Received in revised form 14 November 2023; Accepted 21 November 2023
Available online 14 December 2023
0301-4207/© 2023 Published by Elsevier Ltd.
H. Huang et al.
institutions. Periods of high oil prices may see an increase in public
spending due to public sector growth. However, even when oil prices are
falling, the government still needs to keep spending money on ongoing
projects. The stability of the economy is threatened if the government
borrows money from the central bank. The current financial system is
hurting companies. Additionally, research indicates that investments in
people decline when natural resources are extracted. To achieve the
objective of stimulating economic growth via accumulated capital, a
well-functioning financial system is required. Revenues or rents from
natural resources can be an alternative to private savings, which is why
the two are intrinsically linked to economic growth. Therefore, if a
country is resource-rich but has a weak financial system, the economy
may experience a variety of variations due to factors outside the control
of policymakers, such as the inefficiency of investments. In addition,
resource-rich nations that have a solid financial foundation are better
able to weather price fluctuations because of this structure.
The study is relevant in the following aspects. This study is consid­
erable in studying critical aspects of the N-11 economies. The N-11
economies are blessed with diversified and rich natural resources that
have played a vital role in defining their economic landscapes. These
resources include fossil fuels (such as oil and gas), minerals (such as coal,
iron ore, and copper), arable land, forests, fisheries, and renewable en­
ergy sources. Table 1 presents the oil and natural gas rents in the tar­
geted N-11 economies which is an increasing trend. These economies
have abundant natural resources. Moreover, the strategic physical lo­
cations of some of these countries have also offered access to vital trade
routes, further strengthening their potential for economic growth.
Several N-11 countries are large exporters of oil and gas, providing them
with a considerable source of money. For instance, nations like Iran,
Nigeria, and Indonesia are significant players in the global energy in­
dustry, thus consolidating their positions on the world scene. Rich
mineral reserves in nations like Indonesia, Mexico, and Turkey have
driven their industrial sectors and contributed to the rise of numerous
value-added businesses. These minerals have been crucial in developing
strong manufacturing and infrastructure sectors inside these nations.
Further, the study is crucial in understanding the criteria for financial
development in South Asian economies. Increasing financial market
growth is crucial in relieving poverty and increasing risk management.
Therefore, checking the aspects that positively or adversely affect
financial market growth can aid in devising policies for improving
financial development for sustainability and progression in the economy
(see Table 2).
Based on the above discussion the current study contributes in the
following way. First of all, this is a novel study to examine the impact of
Fig. 1. Conceptual underpinning of the study.
Source: Authors Own Visualization
2
Resources Policy 88 (2024) 104466
natural resources on financial development in the case of N-11 econo­
mies. Due to the importance and strategic level of these economies, the
result will give the proper picture in terms of natural resources and
financial development. Second, the resource curse hypothesis is tested
for the concerned economies, whether this hypothesis is true or false in
the case of N-11 economies. Even if these nations have economic and
financial stability in terms of natural resources, a better consideration of
their financial efficiency exposes whether or not they are prone to the
resource curse. These nations’ plans should transform the abundance of
their natural deposits into financial benefits that decision-makers can
take care of much more adeptly, resulting in much more reliable plans.
Third this study contributes methodologically to the existing pool of
knowledge by testing the cure hypothesis using the panel quantile
regression. Panel quantile regression allows for the examination of
quantile relationships while taking this heterogeneity into account. This
is crucial because the relationships between variables may differ across
individuals or entities and cannot be adequately captured by traditional
linear regression. Moreover, Panel quantile regression is less sensitive to
outliers and extreme observations compared to ordinary least squares
(OLS) regression. It estimates conditional quantiles, which are less
influenced by extreme values in the data. This makes it a robust method
for modeling relationships in the presence of outliers.
2. Literature review
Literature is scarce on how natural resources affect economic
growth. As an added complication, the researchers came to seemingly
opposite conclusions. There has been contradicted evidence on whether
natural resources contribute to economic growth (Anyanwu et al., 2021;
Haseeb et al., 2021; Zahoor et al., 2022). It has been found by re­
searchers such as (Gelb, 1988; Corden and Neary, 1982; Mehlum et al.,
2006; Sachs and Warner, 2001; Elbadawi and Soto, 2016) that nations’
plentiful natural resources are typically less developed economically.
However, there is more research with positive findings than negative
ones. To our knowledge, no previous study has broken down the impact
of natural resources on financial development. The following are the
findings of studies examining the relationship between natural resources
and economic growth: From 1996 to 2006, (Yuxiang and Chen, 2011)
analyzed the link between China’s mineral resources and the country’s
financial development. It was shown that there is an inverse correlation
between the accessibility of mineral resources and FD. It was also found
that resource-rich areas develop economically at a slower clip than those
that are less endowed with natural wealth. Throughout the years be­
tween 2002 and 2010, (Hoshmand et al., 2013) considered the straight
H. Huang et al.
and indirect impacts of oil incomes on FD in 17 oil-exporting countries.
They concluded that income from oil had a chilling effect on FD. The
findings demonstrate that in oil-dependent nations, big oil revenues hurt
FD. (Kurronen, 2015) looked at how natural resource wealth affected
the financial systems of 128 countries between 1995 and 2009. Banks
were found to be relatively smaller in countries with a high reliance on
natural resources. Financial development, GDP expansion, and the price
of crude oil were all investigated (Nwani, 2016) over the period
1981–2011 in Nigeria. It was observed that the price of crude oil has a
positive and statistically significant association with the long-term
expansion of the financial industry. In a study published in 2016,
(Khandelwal et al., 2016) looked at the interplay between changes in oil
prices and macroeconomic and financial trends in the Gulf Cooperation
Council (GCC) nations from 1999 to 2014. Among the study’s findings is
the existence of a connection between oil and macroeconomic factors.
From the years 1981–2015, (Ilo et al., 2018), the connection between
Nigeria’s reliance on oil and the country’s financial development. It was
determined that there was a causal link between a country’s dependence
on foreign oil and its level of economic growth. Between 1960 and 2016,
(Shahbaz et al., 2018) studied the effect of the United States’ abundant
natural resources on the country’s economic development. The findings
suggest that a wealth of natural resources aids in the progress of econ­
omies throughout time. Cause analysis revealed a virtuous cycle be­
tween a wealth of natural resources and economic progress. The FD in
Azerbaijan, Kazakhstan, Russia, and Turkmenistan was studied by
(Gokmenoglu and Rustamov, 2019), who looked at the years 1992–2017
and established that World Bank loans and natural resource availability
played a significant influence. Empirical results exposed that there were
significant associations between the variables studied. The data, how­
ever, presented that World Bank loans and wealth of natural resources
were key factors in economic growth. The wealth of Turkey’s natural
resources and its growing economy were the focus of a recent (Faisal
et al., 2019) research. Their analysis covered the years 1990–2016.
Fig. 2. Quantile process estimates.
Source: Authors’ Calculations
3
Resources Policy 88 (2024) 104466
Outcomes over the long term validated the favorable however minimal
effect of natural resources on FD. There is a two-way causation between
the favorable shock of financial development as well as the favorable
shock of natural resources, as shown by uneven causality.
Additionally, the literature has shown that FDI is positively related to
financial development. The effectiveness of the aforementioned collab­
oration is dependent on the existence of reliable financial institutions
and competitive financial markets that enable easy and low-cost access
to external financing (Antras et al., 2009; Bilir, Chor, & KALINA, 2013;
Boschini et al., 2007; Denizer et al., 2000; Desbordes and Wei, 2017;
Harrison et al., 2004; Liu et al., 2023; Khan et al., 2022). When a
company’s internal cash flow capacity is insufficient to cover the cash
flows required for foreign direct investment (FDI), the type of external
financing that can be procured is determined by the country’s level of
financial development. Access to low-cost external financing has many
advantages, including the facilitation of connections between MNCs and
domestic suppliers, which can lead to economies of scale (Adeniyi et al.,
2012). To effectively manage their fixed costs and partially finance their
plans with a variety of credit facilities, investors must have access to a
robust financial market. Countries can generally reap the benefits of
foreign direct investment when their financial systems have been suffi­
ciently developed (Papyrakis and Gerlagh, 2004; Sharma and Mitra,
2015; Zhang et al., 2022). This allows for the most effective distribution
of money across various productive endeavors (Krifa-Schneider et al.,
2022; Levine, 1999). However, there is no assurance that FDI and eco­
nomic growth will always go hand in hand. When foreign direct in­
vestment (FD) levels fall below a specific threshold, countries see a
decline in their relative allure as destinations for financial development.
For instance, their study (Liu et al., 2020) relied on a panel threshold
model and the IMF’s financial development measures. Research shows
that countries with a financial development index below the cutoff value
of 0.1803 are less likely to attract investment.
It is critical to comprehend the energy-growth nexus, which includes
H. Huang et al. Resources Policy 88 (2024) 104466

monetary growth, trade, urbanization, and so on because energy is Table 1

essential to providing the goods and services that satisfy human wants Natural resources profile of N-11 economies.
(Chen et al., 2023; Khan and Hou, 2021a; Khan et al., 2022; Zakari et al., Oil Rent (% of GDP) Natural Gas Rent (% of GDP)
2023; Ahmed, 2017) explores how newly industrialized nations cope
Countries 2010 2015 2020 2010 2015 2020
with their energy, trade, economic growth, and monetary development.
The cointegration results confirm a long-term relationship between the South Korea 0.043 0.018 0.008 0.003 0.001 0.004
Bangladesh 0.110 0.051 0.016 0.898 0.628 0.457
variables and the Kuznets curve. After a certain threshold of prosperity, Egypt 7.417 3.055 1.857 1.596 0.717 1.272
energy efficiency is further bolstered by economic growth and capital Pakistan 0.728 0.333 0.159 1.065 0.640 0.715
accumulation. For a total of 53 countries, the nonlinear link between Indonesia 2.315 0.796 0.287 0.826 0.960 0.546
national energy use and financial development and wealth was analyzed Vietnam 3.393 1.219 0.242 0.442 0.466 0.247
Iran 20.22 12.26 13.27 1.861 2.629 8.496
(Chang, 2015). In rising markets and underdeveloped countries, energy
Turkey 0.085 0.044 0.061 0.006 0.002 0.001
consumption rises with income; in advanced countries, it rises after a Mexico 4.085 1.546 0.867 0.152 0.130 0.070
certain income threshold. (Çoban and Topcu, 2013) evaluate EU energy Philippine 0.174 0.043 0.012 0.135 0.131 0.115
use and financial evolution (EU). With only the elderly population taken Nigeria 12.09 2.783 3.312 0.620 0.606 0.669
into account, economic growth has a highly favorable effect on power Source: World Development Indicator.
consumption. How financial progress is calculated affects new members’
influence. Demand for energy, financial growth, GDP, FDI, trade, and
capital in the USA are all topics explored in a recent study (Farhani and Table 2
Solarin, 2017). The variables cointegrated with long-term energy de­ Nomenclature of variables and sources.
mand are negatively correlated with financial development, GDP, and Variables Measurement Unit Sources
FDI, and positively with trade and capital. Long-term energy demand is
Financial Private sector credit within the nation as a
driven by GDP, FDI, trade, and capital, with FDI and trade further Development (FND) percentage of GDP.
World Bank
impacting one another. (Furuoka, 2015) examines Asian energy usage Oil Rent (OIR) % of GDP. (2020)
and financial development. The results reveal cointegration and a uni­ Natural Gas Rent % of GDP.
directional causal link between energy usage to financial development. (NAR)
Energy Use (ENR) oil equivalent in kilograms per capita.
(Komal and Abbas, 2015) study Pakistan’s finance–growth–energy Foreign Direct net inflows (% of GDP)
nexus using GMM estimate and adding energy prices and urbanization as Investment (FDI)
factors. Economic expansion, financial development, and urbanization
positively affect energy usage.
The existing scholarly work on the influence of natural resources and
financial development has been thoroughly examined. However, there

Fig. 3. Visualization of MMQREG results.

Source: Authors Visualizations

4
H. Huang et al.
are still essential questions that remain unanswered. To contribute to the
existing pool of knowledge, we have incorporated the most significant
factors in our research. First, no studies in N-11 economies examine the
impact of natural resources such as oil rent and natural gas rent along
with energy use and foreign direct investment on financial development.
This study will provide the overall picture of the N-11 economies
financial development. Most of the previous research concentrated on a
single nation while ignoring a panel of advanced like N-11 economies.
Secondly, the method used in this research is the approach of the Panel
Quantile Regressions (PQR) method. The relationship between variables
in a panel dataset at different points in the dependent variable’s con­
ditional distribution can be examined using panel quantile regression.
When there is heterogeneity in the data and the researcher wants to
know how the association between variables changes between quantiles,
this can be especially helpful. Panel quantile regression can be used to
illustrate how the connection between variables varies over time at
various places in the distribution, as panel data naturally incorporates a
temporal dimension. Furthermore, by capturing potential variability
across distinct quantiles, panel quantile regression enables a more
thorough investigation of the dependent variable’s conditional
distribution.
3. Theoretical framework
How natural resources inhibit financial development is outlined in
the following (Aragón et al., 2015; Beck, 2002). Beck argues that de­
mand and savings rates decline because the natural resource industry
lures workers and capital away from the financial sector. The advocacy
group theory of FD, presented by (Rajan and Zingales, 2003) holds that
dominant firms will always try to decelerate the development of the
economy and keep out new entrants. The industrial sector, exports, and
other economic variables (such as the financial sector) all suffer in
countries rich in natural resources because of slow growth, fewer
financial reforms, and poor business climate (Humphreys et al., 2007;
Sachs and Warner, 2001). Similarly, (Song et al., 2018) claimed that
resource-heavy sectors are detrimental to the manufacturing labor
market and capital transfer. As a result, they stifle financial development
by choking down production (Arvanitis and Weigert, 2017). However, it
has been argued (Nawaz et al., 2019) that a country’s financial devel­
opment is encouraged by easy access to abundant natural resources.
Furthermore, (Bhattacharyya and Hodler, 2014) argues that consumer
and business credit is more readily available in nations with rich natural
resources. Thus we are expecting that natural resources will either in­
crease or decrease financial development FND i.e. natural resources> 0,
or natural reources< 0.
The "Finance-Growth Nexus," a well-known hypothesis (Schumpeter,
1934) contends that FDI promotes financial development by injecting
foreign capital into domestic financial markets. Increased liquidity,
better access to financing, and a more effective distribution of resources
throughout the economy can all result from this capital inflow.
Furthermore, FDI frequently carries with it cutting-edge technologies
and managerial know-how that can increase the efficiency of local
businesses and financial institutions. Additionally, FDI can encourage
financial sector competitiveness, which promotes innovation and effi­
ciency gains. Overall, the link between FDI and financial development
emphasizes how crucial foreign investment is to supporting stability and
economic success in host nations. Therefore we are anticipating that
foreign direct investment pushes the financial development FND i.e.
FDI > 0.
According to the Energy-Led Growth Hypothesis, energy is a key
factor in promoting financial development. According to this notion,
accessible, affordable energy sources can spur economic progress rather
than just being a byproduct of it (Iqbal et al., 2023). As countries gain
access to dependable energy sources, they can increase industrial
output, encourage technical development, and boost overall produc­
tivity. Furthermore, the rise of energy-intensive sectors like industry and
5
Resources Policy 88 (2024) 104466
transportation, which are frequently the foundation of contemporary
economies, is closely tied to energy supply and efficiency. So, according
to proponents of the energy-led growth hypothesis, economic growth
can be fueled while also addressing environmental and energy security
issues by making investments in energy infrastructure and utilizing
sustainable and efficient energy sources. In this case, we are expecting
that energy use may push the financial development FND i.e. ENR> 0.
3.1. Data sources and specifications of model
This study analyzes the effect of natural resources on financial
development in the N-11 economies from 1990 to 2020, considering
additional control variables such as energy use and FDI. Panel data is a
rich and dynamic method for investigating a wide range of issues and
their constituent parts, as described by (Tufail et al., 2022a. It makes it
simpler to reach reasonable conclusions, improves the credibility of the
data, and helps create a stronger argument. The information for each
conceivable variable comes from the World Bank (WDI, 2021). The
following is the general specification of the model.
FND,it = f(OIRit , NARit , ENRit , FDIit ) (1)
In equation (1), the cross-sections are indicated by the letter “i” and they
are as follows: South Korea, Bangladesh, Egypt, Pakistan, Indonesia,
Vietnam, Iran, Turkey, Mexico, Philippines, and Nigeria. ″t″ refers to the
years 1990 through 2020 inclusively. Based on equation (1), the
fundamental regression is presented in the following.
FND,it = Ω1i OIRi,t + Ω1i NARi,t + Ω1i ENRi,t + Ω1i FDIi,t + εi,t (2)
When financial institutions extend credit to the private sector in the
form of loans, purchases of non-equity securities, trade credits, and
other accounts receivable proof of a claim for repayment, this adds up to
FND. In addition, the credit claims of foreign governments are included.
Central banks, deposit money banks, and banks that do not accept de­
posits but have liabilities like time and savings deposits are all examples
of financial entities. When crude oil is sold at local prices, oil rents,
denoted by OIR, represent the extra value above production costs.
Natural gas rentals (NAR) are the discrepancy between the cost of
generating a given quantity of natural gas and its market price in a given
area. All other types of final-use fuels start with primary energy con­
sumption, which is represented by the notation ENR, which covers both
domestic production and imports as well as stock changes but leaves out
exports and fuel provided to ships and aircraft engaged in international
transport. A foreign direct investment (FDI) is any net capital inflow
utilized to buy 10% or more of the voting shares of a firm based in a
country other than the investor’s own. The capital account is made up of
equity capital, earnings held for investment, other long-term capital, and
short-term capital. Net foreign direct investment (FDI) inflows are
estimated by subtracting FDI outflows from GDP in the reporting
economy. The Ωi is cross-section error term and εi,t is the error term.
3.2. Econometric methodology
3.2.1. Cross-sectional dependence test
Panel data analysis that ignores cross-sectional dependence may
provide skewed findings and even false conclusions. When observations
on several entities (such as people, businesses, or nations) in a panel
dataset are not independent of one another, this is known as cross-
sectional dependence. Many statistical models’ underlying assump­
tions may be broken if this reliance is ignored, which could result in
skewed estimates, inaccurate standard errors, and untrustworthy hy­
pothesis testing. The cross-sectional dependence, which is more
frequently difficult to connect with the panel data, must be checked
before the estimation of the models described in the preceding section.
Cross-sectional dependencies are likely due to the interconnectedness of
countries (Tufail et al., 2022b). Long-run estimates and the
H. Huang et al. Resources Policy 88 (2024) 104466

∑ ∑ ∑− 1 2
first-generation unit root test are deceptive when cross-sectional Where σ2v = − − 1
e , σ 0v = Ra − Rae Re , R the long-run covariance
dependence is present. In this investigation, we employ the test devel­ ae ae

oped by Pesaran (2004) for this function. Here is the hypothesis testing
equation:
√̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅
( )̅
√
√ 2T N− 1 ∑
∑ N
CSD = √ ̂i,t
Corr (3)
N(N− 1)N i=1 K=i+1
3.2.2. Unit root test
The stability of individual time series was evaluated using standard
unit root tests. However, since the method of identifying unit roots in
panel data is relatively novel, additional data structures must be
examined before definitive conclusions can be drawn. We performed
several tests based on different standards and theoretical frameworks to
assess the findings of our inquiry. Rather than doing individual unit root
tests on each sample, it is advised that a panel unit root test be carried
out (Levin et al., 2002). One might expect a higher rate of success with
this test. The alternative hypothesis states that every time series must
begin at a unit root, whereas the null hypothesis states this is not true.
The tally is still being kept. The form of the structure under scrutiny is
analogous to the panel-based framework of the ADF test, which will also
be utilized. The equation can be written as follows:
pi
∑
(4)
Δyit = σi yi,t− 1 + ∅iL yi,t− L + αmi dmt + εit ,m= 1, 2, 3
L=1
It has been established that there must be uniformity in the LLC
testing process. To test for an average unit root, (Im et al., 2003) permit a
heterogeneous coefficient on Yi ,t− 1 . The calculated model is presented
by equation (1). Each panel series has a unit root according to the null
hypothesis H0 : ρi = ρ = 0 i.e., the panel is unit-root-complete. As a
counterexample, the alternative hypothesis states that some series have
unit roots while others do not, namely H1 : ρi0 for i = 1, 2........,
N andρi = 0 for i = N + 1, ……….N. Each of the N, ADF statistics is
averaged to produce the IPS t statistic.
1 ∑N
t= tδ (5)
N i=1 i
3.2.3. Panel cointegration test
A linear combination of the time series is stationary, but cointegra­
tion suggests that the individual time series are not. Conventional
cointegration tests such as the Engle-Granger two-step technique and the
Johansen procedure presume that the underlying data-generating pro­
cess is linear and adheres to a certain parametric model. The objective of
this research is to establish a connection between natural resources and
financial development along with other important control variables such
as energy use and foreign direct investment in N-11 economies from
1990 to 2020. For this purpose, it uses cointegration tests, namely the
(Kao, 1999) panel cointegration tests. Non-heterogeneous relationship
testing, in the long run, using the Kao-type test with residuals is
implemented. Similarly, the specific is used in this test. DF and ADF stats
rule out the possibility of having unlike the competing hypothesis,
which holds that there is no cointegration. The following regression is
used for residual estimation:
∑
n
ui,t = ςui,t− 1 + Φj Δui,t− j + ωit (6)
j=1
matrix.
3.2.4. Panel quantile regression
Panel quantile regression (PQR), proposed by (Koenker and Bassett
Jr, 1978), is an improvement over ordinary least squares (OLS) regres­
sion. To begin, a more reliable outcome from PQR can be attained (Bera
et al., 2016). Additionally, using PQR to mold distributional assump­
tions is unnecessary (Sherwood and Wang, 2016). Also, the full condi­
tional distribution of the chosen variables can be captured using this
method (X. Chen et al., 2019; Yu and Jones, 1998). As proposed by
(Wenhui Chen and Lei, 2018; Koenker and Bassett Jr, 1978) quantile
regression can be used to investigate asymmetry in variable distribu­
tions. As a result, we can write down the conditional quantile of yi as:
Qyi (τ|xi ) = xTi βτ (8)
Strong distributions and outliers don’t phase PQR. In this case, the
fixed effect PQR technique was used for this paper:
Qyi (τk |αi , xit ) = αi + xTit β(τk ), i= 1, …, N; t= 1, …, T (9)
Observations are denoted by N, and time is indicated by t. These
steps determine an approximate value for the parameters:
∑
K ∑
T ∑
N ∑
N
( )
min wk ρτk yit − αi − xitT β(τk ) + λ |αi |, i
(α,β)
k=1 t=1 n=1 i (10)
= 1, ⋯, N; t= 1, ⋯, T
4. Results and discussion
First of all, this research employs the fundamental test which is cross-
sectional dependency tests, to pinpoint the panel data issues (see
Table 3). The outcomes of these evaluations are included in Table 4. The
estimated result of the CD examination discloses that all the variables
have statistically significant consequences. Thus, it’s possible to
conclude that the N-11 economies reflect cross-sectional dependency. In
particular, the CD test’s significant outcomes emphasized that a shock in
any one economy may have a ripple effect on the indicators of other
economies.
Tables 5 and 6 demonstrates the outcomes of panel unit root tests for
all variables included in the modeling of natural resource leads to sus­
tainable financial development, together with other variables like en­
ergy use and FDI in Next − 11 economies. Based on the results of the
(Levin et al., 2002) test, the null hypothesis of a unit root can be
accepted when FND, NAR, and ENR are all statistically insignificant.
However, the 5 percent and 10 percent levels of FDI and OIR are
particularly significant. According to the results of the (Breitung, 2001)
method test, while the ENR and NAR are too small to reject the null of a
unit root, the FND, FDI, and OIR are statistically significant at the 10%
and 1% levels, respectively. The (Im et al., 2003) procedure test tells us
that all variables are insignificant at the level while only Foreign direct
investment (FDI) is significant and becomes stationary at the 1 percent
level. Furthermore, (Maddala and Wu, 1999; Choi, 2001) methods based
Table 3
Descriptive statistics.
FND OIR NAR ENR FDI

One set of ADF numbers was determined, for instance, by (Basil et al., Mean 1.501 − 0.198 − 0.924 2.916 0.044
Median 1.478 0.220 − 0.613 2.876 0.105
2005) as:
Maximum 2.216 1.510 0.568 3.733 1.076
√̅̅̅̅ Minimum 0.695 − 3.841 − 3.849 2.075 − 2.555
tADF + (26Nσvσ)v Std. Dev. 0.293 1.311 1.065 0.374 0.532
ADF = √̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅̅ (7)
σ20v 3σ 2v Skewness 0.156 − 0.855 − 0.987 0.145 − 1.718
+ Kurtosis 3.213 2.831 2.930 2.800 8.051
(2σv ) (10σ0v )
2 2

Jarque-Bera 2.034 42.01 55.48 1.765 530.4

Probability 0.361 0.000 0.000 0.413 0.000

6
H. Huang et al. Resources Policy 88 (2024) 104466

Table 4 We use Kao’s cointegration techniques to investigate if two variables

Cross-sectional dependence test. are related across time. Regarding the variables under study, such as
Pesaran (2004) Cross-Section Dependence Test financial development, oil rent, natural gas rent, energy use, and foreign
direct investment, empirical results in Table 7 show a rejection of the
FND OIR NAR ENR
null hypothesis (H0) of the absence of cointegration at the level of 5%
6.602*** 25.025*** 28.282*** 24.986*** significance. Moreover, we applied the Westerlund cointegration test for
FDI
5.041***
the current study. The desired variable in the model is cointegrated, as
indicated by the statistical significance of the four test statistics at the
Note: ***, **, * represent significant level of 1%, 5%, and 10%. 1% level in this study. This means that in the context of the N-11
economies, we can assert that there are long-run associations between
Table 5 financial development, oil rent, natural gas rent, FDI, and energy use.
Panel unit root testing. Long-run cointegrating relationships are confirmed when the appro­
Variables priate panel regression technique is used for long-run coefficient
Level I(0) forecasting.
LLC BR IPS ADFF PPF Once long-term relationships between the variables have been
ENR 1.011 2.054 2.570 11.45 9.996 established, panel quantile regression provides statistical estimates at a
FND − 1.266 − 1.32* 0.353 18.71 8.319 particular scale, location, and quantile. The anticipated outcomes of the
FDI − 1.95** − 3.8*** − 1.637 28.61 45.6***
method are shown in Table 8. According to the factual data, OIR has a
NAR 1.313 − 0.923 2.311 8.947 15.10
OIR − 1.318* − 3.9*** − 1.465* 31.97* 30.24 negative effect on the financial growth of the whole natural resources
First-Difference I(1) industry. The findings indicate that OIR significantly affects FND in all
Δ ENR − 4.658*** − 6.980*** − 6.563*** 82.85*** 306.6*** quantiles. To be more explicit, the OIR decreases FND at all specified
Δ FND − 2.832*** 5.220*** 4.851*** 61.52*** 140.6***
− −
quantiles (Q 0.25, Q 0.50, Q 0.75, and Q 0.90) at the 1% significance
Δ FDI − 9.220*** − 8.831*** − 10.35*** 132.8*** 800.0***
Δ NAR − 7.295*** − 7.491*** − 9.841*** 123.9*** 277.2***
level, which has a negative impact on financial development. A 1% rise
Δ OIR − 10.51** − 10.36*** − 10.05*** 126.8*** 514.7*** in oil rents decreased financial development by 0.29, 0.24, 0.19, and
0.14 percent in Q 0.25, Q 0.50, Q 0.75, and Q 0.90, respectively. Simi­
Note: **** indicates a 10% significance level, ** 5%, and * 1% respectively. Both
larly, in the case of MMQREG, a one percent increase in oil rents reduced
intercept and trend are included.
FND by 0.246,0.213,0.177, and 0.130 percent in all quantiles. In the
case of N-11 economies, the resource curse hypothesis is justified. The
Table 6
notion of the resource curse is one of the main issues with oil rents. This
CIPS unit root test results.
process describes a situation in which nations wholly dependent on oil
Variable(s) At Level At First Difference Order of Integration revenues frequently endure economic instability, corruption, and
I(0) I(1) problems with government. By undermining investor trust and the rule
FND − 2.242 − 4.172*** I (1) of law, this instability may have detrimental repercussions on the
OIR − 2.769 − 3.070*** I (1) growth of the financial sector. It can also be justified that in the N-11
ENR − 2.589 − 5.372*** I (1) economies, there is Poor financial management can occasionally result
FDI − 3.270*** – I (0) from the influx of oil income. Governments may overspend during boom
NAR − 3.070*** – I (1)
periods, only to suffer budget difficulties during price downturns.
Note: **** indicates a 10% significance level, ** 5%, and * 1% respectively. Financial markets and institution development may be hampered by
such fiscal instability. Our results are consistent with the findings of
on the ADF-Fisher Chi-square test show that all the variables have unit (Nathaniel et al., 2021; Tang et al., 2022). Ownership of natural re­
roots except OIR, which is significant at a 1 percent level. The findings of sources (rent from natural gas) is statistically significant and positively
the final PP-F Fisher chi-square test are identical to those of the ADFF linked with FND across all quantiles. FD increases by 0.24, 0.17, 0.12,
test, although the FDI test is significant at a 1% level here. The panel unit and 0.13 percent in the Q 0.25, Q 0.50, Q 0.75, and Q 0.90, respectively,
root test results demonstrate that the majority of the model’s input in response to an increase in natural gas rent of 1%. In the case of
variables do have unit roots. Table 5 displays the findings of five MMQREG, a one percent increase in natural gas rent increases FND by
different panel unit root tests, each assuming that the variables have 0.154,0.141,0.128 and 0.110 percent in all quantiles. The natural gas
been treated as first or second. At a 1% level, all five tests show that ENR, rent plays an important role in the N-11 economies. These countries
FND, FDI, NAR, and OIR are stationary. Moreover, the CIPS unit root test have abundant resources of natural gas. Natural gas extraction and
results indicates that financial development, oil rents and energy use
become stationary at level while foreign direct investment (FDI) and
natural gas rent (NAR) become stationary at first difference. Table 8
Panel quantile regressions.

Table 7 Variables Quantiles

Panel cointegration test. 0.25 0.50 0.75 0.90
Kao Residual Cointegration Test OIR − 0.294*** − 0.245*** − 0.197*** − 0.145***
NAR 0.241*** 0.173*** 0.127*** 0.137***
Statistics Prob.
ENR 0.516*** 0.544*** 0.580*** 0.652***
AGDF − 1.887** 0.029 FDI 0.136** 0.118*** 0.139*** 0.184***
Residuals Variance 0.002 -
Method of Moment Quantile Regression (MMQREG)
HACS Variance 0.002 -
Variables Quantiles
Westerlund Cointegration Test
0.25 0.50 0.75 0.90
Statistic Gt Ga Pt Pa
OIR − 0.246*** − 0.213*** − 0.177*** − 0.130***
Values − 3.726*** − 15.57 *** − 12.97 *** − 17.32*** NAR 0.154*** 0.141*** 0.128*** 0.110***
Z-values − 5.634 − 2.658 − 6.008 − 5.087 ENR 0.349*** 0.354*** 0.359*** 0.366***
P-Values 0.000 0.004 0.000 0.005 FDI 0.146** 0.164*** 0.184*** 0.210***

Note: **** indicates a 10% significance level, ** 5%, and * 1% respectively. Note: **** indicates a 10% significance level, ** 5%, and * 1% respectively.

7
H. Huang et al. Resources Policy 88 (2024) 104466

Table 9 5. Conclusion and policy recommendations

Robustness check.
Variables AMG CCEMG This study adds to the body of existing knowledge by analyzing the
effects of natural resources on financial development in the presence of
OIR − 0.0383*** − 0.0715***
NAR 0.0108** 0.0401** important control factors that have been overlooked in earlier studies.
ENR 0.0166*** 0.1015*** For natural resources, different kinds of variables have been examined.
FDI 0.0144** 0.0249** These variables are oil rent and natural gas rent in the targeted N-11
Note: **** indicates a 10% significance level, ** 5% one, and * 1% respectively. economies. Besides these two variables, other important control vari­
ables such as foreign direct investment (FDI) and energy use have been
evaluated for the period 1990 to 2020. To empirically analyze 2nd
exporting boost economic growth by giving governments a sizable
generation econometric models have been tested along with panel
source of income. This income can be used to fund investments in vital
quantile regression to check the impact of natural resources rent on
fields like infrastructure, education, and healthcare, which will promote
financial development. In the case of oil rents the resources cure hy­
general financial development. Moreover, Foreign exchange gains from
pothesis has been justified in the N-11 economies. Interestingly the
natural gas exports can help to balance a nation’s budget. The legitimacy
natural gas rent reduces financial development. In case of foreign direct
of the nation’s financial institutions and its allure to foreign investors
investment and energy use are favorable for financial development in
can both be improved by a healthy balance of payments. In the case of
the targeted economies.
natural resources, our findings are similar to the findings of (Shahbaz
A moderate policy approach is essential for N-11 economies that are
et al., 2018) (see Table 9).
significantly dependent on oil revenues to secure long-term financial
Additionally, it shows that FDI positively and substantially impacts
development. Priority should be given to diversifying the economy away
financial development across all quantiles. Due to an increase in FDI of
from dependence on oil. Governments can use the money they save by
1% in each of the Qs 0.25, 0.50, 0.75, and 0.90, financial development
taxing oil to fund infrastructure, education, and other non-oil industries,
grew by 0.13, 0.11, 0.13, and 0.18 percent, respectively. In the same
which will strengthen the economy as a whole. Effective fiscal policies
way in the method of moment, quantile regression results show that a
can be put into place to lessen the volatility of the oil market, such as
one percent increase in FDI boosts FND by 0.146,0.164,0.184, and 0.210
creating sovereign wealth funds to set aside a portion of oil revenue for
percent respectively. Foreign direct investment plays an important role
future generations and countercyclical fiscal policies. A more stable and
in the process of financial development in the N-11 economies. FDI
diverse economy can also be achieved through encouraging a business-
brings in much-needed capital, technology, and skills, which can
friendly climate, encouraging innovation, and luring foreign direct in­
considerably accelerate economic growth. This inflow of foreign money
vestment into non-oil sectors. Moreover, investing in green technologies
into numerous economic sectors, including infrastructure, services, and
and renewable energy can improve the long-term financial development
manufacturing, not only encourages job growth but also boosts pro­
prospects of N-11 economies by opening up new opportunities for eco­
ductivity and creativity. Furthermore, FDI frequently incorporates top
nomic growth while reducing environmental dangers.
corporate governance and management standards, fostering efficiency
In the case of successfully controlling energy use and foreign direct
and transparency inside domestic enterprises. Additionally, the stability
investment (FDI) a comprehensive policy strategy is necessary to foster
that FDI investments bring to the financial system and their long-term
financial development in N-11 economies. Prioritizing the development
character attract other investments, which in turn helps the N-11
of a supportive regulatory framework that facilitates FDI inflow by
economies’ total financial development. These results are similar to
streamlining the investment process and providing incentives to draw in
those (Irandoust, 2021). Last but not least, there is a positive correlation
foreign capital should be a top priority for these economies. They should
between energy use and FND across all quantiles. According to research,
also put laws into place to guarantee responsible and sustainable energy
financial development would grow by 0.51, 0.54, 0.58, and 0.65 percent
consumption. This can entail making investments in green infrastructure
for every 1% increase in energy use. According to MMQREG results a
development, energy efficiency enhancements, and renewable energy
one percent increase in energy use boosts financial development by
sources. To maximize the advantages of FDI and optimize energy use, it
0.349,0.354,0.359 and 0.366 percent respectively. On the one hand,
will also be crucial to support technological innovation and education to
greater industrialization and economic activity, which can increase GDP
improve human capital. The N-11 economies may accomplish both
and generate jobs, might be a sign of higher energy use. Additionally,
economic growth and environmental sustainability, supporting their
businesses need access to affordable, dependable energy to run effec­
long-term financial development goals, by finding a balance between
tively and promote innovation. The environmental impact and sustain­
luring foreign investment and implementing sustainable energy
ability implications of energy consumption must be taken into account,
practices.
though. An over-reliance on fossil fuels can have detrimental long-term
economic effects and contribute to environmental degradation. There­
6. Limitations and future recommendations
fore, for long-term economic growth and the welfare of N-11 economies,
a balanced strategy that supports energy efficiency, renewable energy
Finally, we will discuss some of the caveats of our study and suggest
sources, and sustainable energy practices is essential. In the case of
some future directions for investigation. After projecting that re­
energy use our results are similar to.
searchers would want to keep collecting data until 2023, we found that,
In addition, the Augmented Mean Group (AMG) and Common
due to data constraints, we could only go until 2020. Additionally, the N-
Correlated Effect Mean Group (CCEMG) were employed in this study to
11 economies are our primary focus. This paper’s findings may give the
evaluate the robustness and validate the empirical findings of the prior
path and can be applied for future research for other countries like G7,
estimate. Table 8 displays the anticipated outcomes for the aforemen­
G8, and some of the OECD economies. Moreover, other factors, such as
tioned estimators. This research provides empirical evidence that nat­
mineral rents and their impact on financial development, may be
ural resources have a detrimental effect on financial development. The
addressed in future discussions. The dynamic relationship between
results of the robustness test, therefore, support the empirical results of
natural resources and FDI for the benefit of the economy of interest or
the panel quantile regression approach.
others can also be studied.

8
H. Huang et al.
Credit author statement
Huafang Huang: Conceptualizing, data, methodology, empirical re­
sults, and discussion.
Xianfu Cheng: Conceptualizing, data, methodology, empirical re­
sults, and discussion.
Liangli Wei: Conceptualizing, Review, and Editing.
Dongping Liu: Review, and Editing.
Minmin Deng: Review, and Editing.
Declaration of competing interest
The authors declare that they have no known competing financial
interests or personal relationships that could have appeared to influence
the work reported in this paper.
Acknowledgement:
This work was supported by the National Natural Science Foundation
of China (41271516), key projects in Humanities and Social Science
Research of Higher Education Institutions in Anhui Province
(2023AH051250, 2022AH052084, SK2021A0503), Cooperation Special
Projects of Hefei Xingtai Financial Holdings (Group) Co., Ltd
(2023XTTDZD01, 2023XTQTZD09, 2023XTQTZD22, 2023XTQTZD23),
a Talent Research Launch Fund Project of Hefei Normal University
(2020rcjj01).
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