Resources Policy 86 (2023) 104206

Contents lists available at ScienceDirect

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

Resource curse or blessings hypothesis in Pakistan: The role of financial

development and oil prices in era of globalization
Amir Imtiaz a, *, Snober Javid b
a
UCP Business School, University of Central Punjab, Lahore, Pakistan
b
UCP Business School, Faculty of Management Sciences, University of Central, Punjab, Pakistan

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

Keywords: This paper investigated either natural resource curse hypothesis exists in Pakistan by integrating the dynamic
Resource curse role of financial development, globalization and oil prices into augmented production function covering the
Financial development period of 1972–2021. We applied unit root test, ARDL bounds testing and Granger causality approach by
Oil prices
including information of single unknown structural break in the series. Our empirical analysis confirms that
Globalization
Pakistan
natural resources abundance has inverse effect on economic growth i.e. nature resource curse hypothesis is valid.
The supply-side effect is confirmed i.e. financial development adds to economic growth. Oil prices are inversely
linked with economic growth. Capitalization, globalization and labor stimulate economic growth. The Granger
causality analysis indicates the existence of bidirectional causal relationship between natural resources and
economic growth. The feedback effect exists between financial development and economic growth. The unidi­
rectional causality is found running oil prices (labor force) to economic growth. Globalization and economic
growth are complementary. This paper opens new insights for policy making authorities to utilize natural re­
sources as economic tool to boost economic growth via proper and comprehensive management of natural re­
sources with help of financial development.

1. Introduction
The influence of country’s natural resources on its economic and
financial development could either be positive or negative. Hence, the
resource curse hypothesis tends to have negative effect on economic
growth means the failure of country to get proper benefits from its
abundance of natural resources. The resource curse hypothesis, initially
formulated by Richard Auty in the 1990s, also known as the paradox of
plenty, posits a significant negative relationship between a country’s
abundance of natural resources, especially non-renewable resources like
oil, minerals, and gas, and its economic development and political sta­
bility. The term “resource blessings” refers to the possibility that natural
resource abundance can benefit a nation’s development if managed
effectively. In Pakistan, a country rich in such resources, this phenom­
enon has sparked substantial research. The emergence of globalization
also give environment threats. Khan, I. et. al. (2021) & Khan et al.,
(2022a,b,c) focuses the energy impacts on environment sustainability
and economy using different modern empirical techniques. However,
the impact of natural resources on economic development in the pres­
ence of financial development, oil prices, globalization, capital and
labor, still remain unveil in context of Pakistan. This study focus on this.
The literature review explores this concept, with a particular focus on
the role of financial development and oil prices in the context of glob­
alization. The resource curse hypothesis has been proven from various
empirical studies like Badeeb et al. (2016) and Arezki and Brückner
(2011). While some neglects this hypothesis and find out that the natural
resources are blessing such as Philippot (2010). As in previous studies,
this has been shown that effective economic policies are design by un­
derstanding the connection between natural resources and financial
development and its impact on the economic policies. This investigation
also shed lights on how the abundance of natural resources can shape
financial development in different regions as shown in the previous
research (Gylfason, 2001). It has been observed from various studies
that increasing oil prices put pressure on economy of the country and
vice versa. As Poghosyan and Hesse 2009, Samargandi et al., 2014
suggests the development of financial sector is also a function of oil
prices. Hence these studies and other research on this area remains the
gap for new researches to find out the functionalities among natural
resources and other variables in the augmented production function,
specially for developing countries like Pakistan. The resource curse leads

* Corresponding author.
E-mail addresses: amirimtiazbajwa@gmail.com (A. Imtiaz), snober.javid@ucp.edu.pk (S. Javid).

https://doi.org/10.1016/j.resourpol.2023.104206
Received 9 May 2023; Received in revised form 14 September 2023; Accepted 23 September 2023
Available online 10 October 2023
0301-4207/© 2023 Elsevier Ltd. All rights reserved.
A. Imtiaz and S. Javid
to opposite behavior towards economic growth of country whilst an
improper utilization of its plentiful resources. For instance, Angola’s
(country in Central Africa) economy mostly based on oil and diamond
reserves so its economy is extremely vulnerable in case of consistent
decline in oil prices as all of the nation’s wealth is dependent on this
sector. In this sense, Angola may have been “cursed” by its large oil
reserves. Natural resources occur naturally on earth without the help of
human(s).1 In this phenomenon, resource rich countries have higher rate
of conflicts and lower rate of economic growth and stability. Natural
resources wealth has different characteristics from other types of
country’s wealth which has large upfront costs, long production time­
line, site-specific nature, volatility and secrecy of the industry. More­
over, price and production of natural resources are also distinctive in
nature for those of other resources like exports. Political instability de­
tects in resource rich countries that faces the underperformance of
economic growth while using natural resources. Especially, oil import­
ing countries face such inconsistency in their growth as they may not be
able to utilize their own energy resources properly due to high costs and
some political pressure (Chen et al., 2023).
Capital accumulation and technological process as well as financial
markets are basic tools of financial development that promotes eco­
nomic growth. Capital can be generated from different sources to meet
financial needs of the country. This can achieve by increasing savings
rate, investing and pooling savings, producing information about in­
vestment, facilitating and encouraging the inflows of foreign capital, as
well as optimizing the allocation of capital. Financial markets help
efficiently to direct the flow of savings and investment in the economy in
such ways that facilitate the accumulation of capital and the production
of goods and services. Financial development’s impact on economic
growth has been a subject of extensive research. Joseph Schumpeter’s
Schumpeterian growth theory (1934) introduced the concept that
financial institutions drive innovation and entrepreneurship, boosting
growth. Patrick Bolton and David S. Scharfstein’s work on financial
intermediation (1990s) highlighted the role of institutions in reducing
information asymmetry and promoting investment. Asli Demirgüç-Kunt
and Leora Klapper’s focus on financial inclusion (2000s) underscores
how extending financial services can enhance human capital and
entrepreneurial activities. Recent research by economists such as Car­
men Reinhart and Kenneth Rogoff (2000s) underscores the importance
of regulating financial systems to prevent crises. Valickova et al., 2014
states that financial development significantly influences economic
growth, though with varying estimates. Growth of institutions and
markets with huge investments and growth tends to develop financial
sector which further leads economic growth. Financial development also
creates the profitable opportunities for investment. For instance, proper
allocation of capital promotes the economy (Levine, 1997). In such
circumstances, strong financial policies increase financial development
that affects economic growth positively. It is well established that
financial sector development plays an important role in economic
growth. Likewise, (Kandil et al., 2017) found the positive effect of
financial development on economic growth in India and China.
Generally, oil prices affect inflation which in resulting, affects eco­
nomic growth by increasing cost of production. Major oil importers
countries like Pakistan also face rising price of oil. In the recent years
after pandemic the recovery, oil prices are fluctuating but going high
due to change in global economic activity. By applying the ARDL bounds
testing approach to cointegration, estimation conducted by Yasmeen
et al. (2019) to identify the effects of oil prices on different sectors. They
find different effects in different sectors. Liaqat et al. (2022) applied
same test for examining this nexus. Their empirical results clearly show
1
Natural resources give us water, wood, food and energy and it is impossible
to live without natural resources. Natural resources include oil, coal, natural
gas, metals, stone, and sand. Air, sunlight, soil, and water are other natural
resources.
2
Resources Policy 86 (2023) 104206
the presence of negative effect of oil prices on domestic production
which further declines economic growth. Similarly, Ahmad et al. (2019)
limited their research scope to Pakistan to build and estimates this
nexus. Their study provides evidence that higher oil prices have a sig­
nificant negative effect on economic growth in the country. Thus,
volatility in oil prices affects transportation and production costs, and
commercial bills which in return, affect economic activity in era of
globalization. It is noted by Dreher (2006) that globalization leads an
economy for institutional reforms and links it with international mar­
kets. Globalization stimulates economic growth by foreign direct in­
vestment and technological transfer effects. Globalization, the process of
increased interconnectedness and interdependence among countries,
has complex implications for environmental stability. Its impact on the
environment can be both positive and negative. Environmental prob­
lems often transcend national boundaries (Khan and Hou, 2021a, b.
Globalization can foster international cooperation and agreements on
environmental protection, as countries recognize the shared re­
sponsibility for global sustainability(Biermann et al., 2017)). On the
other way, Globalization can exacerbate social and economic in­
equalities, which in turn can affect environmental sustainability by
limiting access to resources and opportunities for marginalized com­
munities (Martinuzzi et al., 2018). Similarly, for Pakistan’s economy,
Afzal (2006) measured globalization by trade openness and financial
integration and reported that globalization has insignificant effect on
economic growth. Contrarily, Kakar et al. (2011) noted that globaliza­
tion plays a vital role in stimulating economic activity and hence, eco­
nomic growth in Pakistan.
Natural resources help to control trade deficit of the country. It also
boosts the sources of finance by welcoming foreign direct investment
and rapid trade with other countries. Efficient use of natural resources
stabilizes financial system and stable financial development generates
higher economic prosperity (Shahbaz, 2012). Pakistan is resource rich
country. It has large minerals, hydrocarbons and power. Coal minerals
found in specific areas of all provinces and produce 3.2 million tons of
coal and Pakistan contains 5th largest coal reserves in the world. Simi­
larly, natural gas is in abundance in Sui & Mari. Most of energy demand
fulfills with oil and Pakistan fulfills almost 20% of its fuel consumption
from its own oil reserves. Having all such resources, Pakistan still faces
challenges such as energy crisis. This directly and indirectly affects do­
mestic production which in resulting, economic growth is affected. Oil
prices actually have indirect relationship with all the revenue generating
sectors of Pakistan. Pakistan’s energy sector is highly dependent on oil
imports. Due to lack of oil extraction capacity, few refineries and low
foreign investments, Pakistan faces a lot of challenges to restrain eco­
nomic barriers.
In case of Pakistan, resource curse hypothesis is testified by ignoring
the pivotal role of financial development, oil prices and globalization in
domestic production function. This study contributes to existing by five
folds: (i), This study examines either resource curse hypothesis exists or
not in Pakistan. (ii), Financial development, oil prices and globalization
are included in domestic production function as additional determinants
of economic growth. (iii), To test the stationarity properties of the var­
iables, traditional unit root tests such as Augmented Dickey and Fuller
(1981) and Phillips and Perron (1988) are applied. To overcome the
issue of structural break occurs in time series data, we apply ADF unit
root test developed by Kim and Perron (2009) which contains infor­
mation of single unknown structural break stems in time-series data of
sampled variables. (iv), We apply autoregressive distributive lagged
model (ARDL) or ARDL bounds testing to check the presence of coin­
tegration between the variables containing the information of single
unknown structural break stems in time-series. (v), To examine causal
association between economic growth and its determinants, Granger
(1969) causality test is chosen to examine short run and long run causal
relationship between the variables. Our results indicate the existence of
cointegration between economic growth and its determinants. The
research aims to provide new policy insights to the government
A. Imtiaz and S. Javid
regarding the utilization of natural resources especially in Pakistan. By
analyzing empirical results, the study intends to offer recommendations
and guidelines for the government to make informed decisions related to
natural resource management. The pivotal role of financial develop­
ment, oil prices, and globalization in the domestic production function is
considered. These factors are recognized as significant influences on
economic growth and are therefore incorporated into the research
model. Previous studies have examined the effects of oil prices, financial
development, and globalization on Pakistan’s economy separately,
resulting in biased empirical results. To address this limitation, the
research aims to include these variables in a single model to obtain more
accurate and comprehensive findings. The interdependence between
mediators, namely capital and labor, is acknowledged.
2. Empirical modeling and data
2.1. Empirical modeling
Natural resources affect economic growth by double-edge effect i.e.
intensive use of natural resources increases domestic output and
depletion rate of natural resources is also increased and vice versa. It
shows that natural resources play a vital role in production process and
increases economic growth if natural resources are utilized efficiently
and vice versa. Financial sector via easy monetary policy may reduce
cost associated with financial intermediation which in resulting, in­
crease investment’s overall return. This leads financial development to
lower cost accompanied with the provision of finance from external
sources and stimulates economic growth. This study is to test the
resource curse hypothesis in Pakistan by accommodating financial
development, oil prices and globalization as additional factors of eco­
nomic growth in domestic production function. The general form of
production function is modeled as following:
Yt = f (Nt , Ft , Ot , Kt , Lt , Gt )
It is well noted in existing literature that simple-linear specification
of domestic production function provides empirically biased results due
to sharpness in time series data (Sbia et al., 2014). In such circum­
stances, Sbia et al. (2014) and later on, Shahbaz et al. (2017) suggested
to use log-linear specification for empirical analysis which provides
empirically efficient and unbiased empirical results. On the basis of
above reasoning, log-linear specification of domestic production func­
tion is modeled as following:
ln Yt = α0 + α1 ln Nt + α2 ln Ft + α3 ln Ot + α4 ln Kt + α5 ln Lt + α6 ln Gt
+ μt
where, ln, Yt , Nt , Ft , Ot , Kt , Lt and Gt represent natural-log, economic
growth measures by real GDP per capita, natural resources calculate by
real natural resources per capita, financial development extents by real
domestic credit to private sector per capita, oil prices by Brent crude oil
prices, capitalization measures by real capital per capita, labor degrees
by labor per capita and globalization (sum of economic globalization,
political globalization and cultural globalization) is an index measured
by Dreher (2006). Further, we may assume α1 > 0 if natural resources
are blessings i.e. natural resources positively affect economic growth
otherwise α1 < 0 if resource curse hypothesis exists. α2 > 0 if financial
development stimulates economic growth otherwise α2 < 0 which
means financial development is negatively linked with economic
growth. α3 < 0 if oil prices negatively affect economic growth otherwise
α3 > 0. Capitalization is positively linked with economic growth (α4 >
0) otherwise α4 < 0 if capitalization affects economic growth negatively.
α5 > 0 if labor is positively linked with economic growth otherwise α5 <
0. Globalization is positively associated with economic growth if α6 > 0
otherwise α6 < 0.
Resources Policy 86 (2023) 104206
2.2. Data sources
Time series data is used for empirical purpose that will be annually
data over the period of 1972–2021 which makes 50 years sample size
which will be appropriate for the ARDL bounds testing approach to
cointegration (Shahbaz, 2012). We will browse world development in­
dicators (CD-ROM, 2022) to collect data for real GDP (constant local
currency). Natural resource rents (mineral rents, forest rents, natural gas
rents, oil rents and coal rents) as share of GDP will be collected from
world development indicators (CD-ROM, 2022). The data for domestic
credit to private sector as share GDP, gross fixed capital formation as
share of GDP and total labor force (% of total population ages 15+) will
also be collected from world development indicators (CD-ROM, 2022).
The Statistical Review of World Energy will be used to collect data on
Brent crude oil prices. We will borrow data on globalization index from
Dreher (2006). Economic globalization index is composite of trade,
foreign direct investment, portfolio investment, income payments to
foreign nationals, hidden import barriers, mean tariff rate, tax on in­
ternational trade and capital account restrictions. To convert data into
per capita unit, we will divide all the variables on total population after
converting all the variables into real terms except oil prices and glob­
alization index. The choice of the sample period is influenced by data
availability. As we attain more reliable and comprehensive data of this
period. 1971 was the war period in Pakistan so the data after this will
more accurate and stable. Moreover, the selection sample is aligned with
the research question. For estimation of long-term trends or the impact
of historical events on economic growth, a longer time frame
(1972–2021) is appropriate. This period is long enough to ensure sta­
tistical robustness and to capture potential trends and relationships in
the data. Longer time series data can provide more reliable results.
3. Empirical strategy
(1)
3.1. Unit root testing
Dickey and Fuller (1981) presented the standard unit root test, used
to analyze static properties of variables. If, however, there is any
inconsistency within a series, ADF Unit Root test results can yield
misleading or inconsistent information (Shahbaz et al., 2018). For
instance, ADF proceeds for settled the nonlinearity issue. A null hy­
pothesis could be considered in an empirical discussion, but due to un­
alterable results description and demonstration, this isn’t possible here
and vice versa. Kim and Perron (2009) developed advanced ADF unit
root tests as a solution. They suggest that single unrevealed structural
breaks should be considered when identifying unit root to avoid any
(2) confusion or ambiguity. A nonlinearity problem is solved more effec­
tively using this strategy with more logical results. This study utilizes the
tracks of Leybourne et al. (1998a) as well as the formulation of Enders
and Lee (2012) to produce more reliable t-statistics, which form portion
φ of OLS regression). The equation-3 is specified as follows:
ε t = d(t) + φ1 ̂ε t− 1 + vt
̂ (3)
In equation-3, d(t) signify as the function of “t” while variance “σ ” is
2
the stationary perturbation of “vt ” Consequently, supposing the value of
“εt ” constant is supposed to be less connected in the specified model.
Thus, equation-3 can be used to estimate and calculate the null hy­
pothesis unit root, e.g. functional is approved if the theme to be observed
is ambiguous, then any testation may be a bit tough. Consequently, to
mark d(t) practicable, the work selected the technique of Fourier
expansion.
( ∏ ) ∑ ( ∏ ) /
∑n n
2 kt 2 kt
dt = α0 + αk sin + βk cos ,n ≤ T 2 (4)
k=1
T k=1
T
In equation-4, “n” represents the cumulative frequencies, while “k”
represents the definite frequency that must be determined using T
3
A. Imtiaz and S. Javid Resources Policy 86 (2023) 104206

observations so, for cumulative values of αk = βk = 0. No nonlinear stationary

trend is present here; thus, Leybourne et al. (1998b) calculation stands This work uses the critical value of the structural break unit root test
out in this instance. Due to potential quality issues and over fitting is­ to evaluate the hypothesis opposing the essential values.
sues, a moderate value should be chosen for “n”. Over fitting issues re­
mains one of the significant problems. Therefore, Fourier approximation
3.2. ARDL bounds testing to cointegration
may be more efficient with smaller amounts of frequency variables and
frequency sub ranges, providing more dynamic characteristics of an
Existing literature on applied economics provides numerous cointe­
unknown functional type with smooth breaks (Gallant, 1984; Bierens,
gration tests to test whether cointegration exists among macroeconomic
1997). Furthermore, smaller numbers should help assess gradual
variables. These tests, including Engle-Granger, were developed by
nonlinear trends (Davles, 1977; Gallant and Souza, 1991). Therefore the
Engle and Granger (1987); maximum likelihood cointegration was
following equation would serve as the test matrix:
created by Johansen and Juselius (1990); the dynamic ordinary least
( ∏ ) ∑ ( ∏ )
∑n
2 kt n
2 tk square method was developed by Stock and Watson (1993). These tests
Δ̂ε t = α0 + αk sin + βk cos ε t− 1
+ φ1 ̂
k=1
T k=1
T of cointegration demand that the variables are combined ad integrated
p
∑ at a specific level. We cannot test cointegration between the variables
+ ε t− 1 + vt
φk Δ̂ (5) when series are integrated in mixed order, i.e. I (0)/I (1). This problem is
i− 1 resolved by the bounds-testing method for cointegration introduced by
Increasing predicted variables lag values is often employed to control Pesaran et al. (2001), known as an autoregressive distributive model
the stationary dynamics ̂ ε t in test equation-5. Kim and Perron (2009) (ARDL) or a bounds-testing method for cointegration. The bounds test
unit root seeks to determine whether small frequency indicators can can be used when variables have mixed integration order if none of the
accurately replicate interference commonly found in data. It is proper to series is interconnected concerning I (2). This test is more effective when
answer this question by employing an indicator with one frequency as its the data sample is smaller. This test reduces the issue of serial correla­
proxy (using a “k” estimate of Fourier approximation) and sine in­ tion using Monte Carlo simulations, and this feature isn’t present in
dicators by denoting both an amplitude sum and transposition. There­ traditional cointegration techniques. It is possible to accommodate the
fore, different smooth breaks can be evaluated αk & βk using only one data of break times by adding an Unrestricted Error Correction Model
frequency k = 1. (UECM) variation of the ARDL bounds testing. These properties appeal
to bounds testing approach for examining the cointegration between the
H0. (Linear non-stationary) Unit root variables. The equations for the empirical model of error correction
H1. (Nonlinear and stationary around smooth breaks) Nonlinear model that is unrestricted are as follows:

ΔlnYt = β1 + βT T + βD D + βY ln Yt− 1 + βN ln Nt− 1 + βF ln Ft− 1 + βP ln Pt− 1 + βG ln Gt− 1

p
∑ ∑q ∑ r ∑ s
+βK ln Kt− 1 + βL ln Lt− 1 + βi ΔlnYt− i + Bj ΔlnNt− j + βk ΔlnFt− k + βl ΔlnPt− l
(6)
i=1 j=0 k=0 l=0
p
∑ p
∑ p
∑
+ βm ΔlnGt− m ++ βn ΔlnKt− n + + βo ΔlnLt− o + μt
m=0 m=0 m=0

ΔlnNt = β1 + βT T + βD D + βY ln Yt− 1 + βN ln Nt− 1 + βF ln Ft− 1 + βP ln Pt− 1 + βG ln Gt− 1

p
∑ ∑q ∑ r ∑ s
+βK ln Kt− 1 + βL ln Lt− 1 + βi ΔlnNt− i + Bj ΔlnYt− j + βk ΔlnFt− k + βl ΔlnPt− l
(7)
i=1 j=0 k=0 l=0
p
∑ p
∑ p
∑
+ βm ΔlnGt− m ++ βn ΔlnKt− n + + βo ΔlnLt− o + μt
m=0 m=0 m=0

ΔlnFt = β1 + βT T + βD D + βY ln Yt− 1 + βN ln Nt− 1 + βF ln Ft− 1 + βP ln Pt− 1 + βG ln Gt− 1

p
∑ ∑q ∑ r ∑ s
+βK ln Kt− 1 + βL ln Lt− 1 + βi ΔlnFt− i + Bj ΔlnYt− j + βk ΔlnNt− k + βl ΔlnPt− l
(8)
i=1 j=0 k=0 l=0
p
∑ p
∑ p
∑
+ βm ΔlnGt− m ++ βn ΔlnKt− n + + βo ΔlnLt− o + μt
m=0 m=0 m=0

ΔlnPt = β1 + βT T + βD D + βY ln Yt− 1 + βN ln Nt− 1 + βF ln Ft− 1 + βP ln Pt− 1 + βG ln Gt− 1

p
∑ ∑q ∑ r ∑ s
+βK ln Kt− 1 + βL ln Lt− 1 + βi ΔlnPt− i + Bj ΔlnYt− j + βk ΔlnNt− k + βl ΔlnFt− l
(9)
i=1 j=0 k=0 l=0
p
∑ p
∑ p
∑
+ βm ΔlnGt− m ++ βn ΔlnKt− n + + βo ΔlnLt− o + μt
m=0 m=0 m=0

ΔlnGt = β1 + βT T + βD D + βY ln Yt− 1 + βN ln Nt− 1 + βF ln Ft− 1 + βP ln Pt− 1 + βG ln Gt− 1

p
∑ ∑q ∑ r ∑ s
+βK ln Kt− 1 + βL ln Lt− 1 + βi ΔlnGt− i + Bj ΔlnYt− j + βk ΔlnNt− k + βl ΔlnFt− l
(10)
i=1 j=0 k=0 l=0
p
∑ p
∑ p
∑
+ βm ΔlnPt− m ++ βn ΔlnKt− n + + βo ΔlnLt− o + μt
m=0 m=0 m=0

4
A. Imtiaz and S. Javid Resources Policy 86 (2023) 104206

ΔlnKt = β1 + βT T + βD D + βY ln Yt− 1 + βN ln Nt− 1 + βF ln Ft− 1 + βP ln Pt− 1 + βG ln Gt− 1

p
∑ ∑q ∑ r ∑ s
+βK ln Kt− 1 + βL ln Lt− 1 + βi ΔlnKt− i + Bj ΔlnYt− j + βk ΔlnNt− k + βl ΔlnFt− l
(11)
i=1 j=0 k=0 l=0
p
∑ p
∑ p
∑
+ βm ΔlnPt− m ++ βn ΔlnGt− n + + βo ΔlnLt− o + μt
m=0 m=0 m=0

ΔlnLt = β1 + βT T + βD D + βY ln Yt− 1 + βN ln Nt− 1 + βF ln Ft− 1 + βP ln Pt− 1 + βG ln Gt− 1

p
∑ ∑q ∑ r ∑ s
+βK ln Kt− 1 + βL ln Lt− 1 + βi ΔlnLt− i + Bj ΔlnYt− j + βk ΔlnNt− k + βl ΔlnFt− l
(12)
i=1 j=0 k=0 l=0
p
∑ p
∑ p
∑
+ βm ΔlnPt− m ++ βn ΔlnGt− n + + βo ΔlnKt− o + μt
m=0 m=0 m=0

Here θ0 = − α1 /αY , θ1 = − αN /α1 , θ2 = − αF /α1 , θ3 = − αP /α1 , θ4 = −

Here Δ, D and μt are dissimilarity operator, binary variable, and the αG /α1 , θ5 = − αK /α1 , θ6 = − αL /α1 μt is the residual term. The impact of
error term. The AIC is selected for suitable lag length selection. The natural resources, financial development, oil prices, globalization, cap­
ARDL F-statistic is insightful with lag order. The incongruous lag order ital, and labor force on economic growth for the short run can be tested
promotes biased ARDL F-statistic, which shows ambiguous results and by the error correction model as given below:
misleads for deciding cointegration. The ARDL F-statistic displays the
∑
l ∑
m ∑
n ∑
o
joint implication of variables at the level and supports determining ΔlnYt =φ01 + φ11 ΔlnNt− i + φ22 ΔlnFt− j + φ33 ΔlnPt− k + φ44 ΔlnGt− r
whether cointegration exists (Pesaran et al., 2001). The null hypothesis i=1 j=0 k=0 r=0
contains no cointegration H0 : βY = βN = βF = βP = βG = βK = βL = 0 , ∑
n ∑
o
+ φ55 ΔlnKt− k + φ66 ΔlnLt− r + ηECMt− 1 + μi
and the alternate hypothesis comprises cointegration equation-6. The
k=0 r=0
subsequent turn is to link the calculated ARDL F-statistic with lower and
(14)
upper critical bounds made by Pesaran et al. (2001). The cointegration
happens if the calculated ARDL F-statistic is greater than the upper where Δ is the difference operator, and η is the coefficient of ECMt− 1
critical bound (UCB). We privilege for the absence of cointegration if the demonstrating the convergence speed.
computed ARDL F-statistic does not exceed the lower critical bound
(LCB). If the calculated ARDL F-statistic lies between upper critical 3.3. Granger causality approach
bound and lower critical bound then cointegration is unclear. Further­
more, we conduct the consistency of factors by using CUSUM and The vector error correction method shows the fundamental rela­
CUSUMsq tests for stability. The influence of natural resources, financial tionship among the series. Granger (1969) claimed that cointegration is
development, oil prices, globalization, capital, and labor force on eco­ existent and distinctive integrating order of the variables is presented, i.
nomic growth can be tested by using the model as follows: e. I (1), causality must exist between the variables, at least from any one
track. The standard form of the model for VECM Granger causality is
ln Yt = θ0 + θ1 ln Nt + θ2 ln Ft + θ3 ln Pt + θ4 ln Gt + θ5 ln Kt + θ’6 ln Lt
expressed in equation-15 as given below:
+ μi
(13)

Table 1
Descriptive statistics and correlation analysis.
Variable ln Yt ln Rt ln Ft ln Pt ln Gt ln Kt ln Lt

Mean 11.5671 7.0840 10.0545 3.3101 3.7521 9.7051 3.9991

Median 11.5835 7.0214 10.0889 3.3014 3.7844 9.7594 3.9832
Maximum 12.0372 8.1461 10.5370 4.6920 4.0029 10.1408 4.0747
Minimum 11.0603 4.8640 9.4757 0.6418 3.4190 8.9229 3.9523
Std. Dev. 0.2762 0.6474 0.2278 0.8751 0.2061 0.2799 0.0386
Skewness − 0.1382 − 0.6673 − 0.4074 − 0.5514 − 0.1355 − 1.0570 0.6138
Kurtosis 2.0891 4.2709 3.3682 3.6801 1.3922 3.9295 1.8623
Jarque-Bera 1.8876 1.6763 1.6659 3.4982 3.5381 3.1109 1.8363
Probability 0.3891 0.4009 0.4347 0.1739 0.1627 0.2738 0.3940
ln Yt 1.0000
ln Rt − 0.1972 1.0000
ln Ft 0.4064 0.0020 1.0000
ln Pt − 0.0546 0.4286 − 0.1741 1.0000
ln Gt 0.0170 0.2949 − 0.0081 0.1409 1.0000
ln Kt 0.4794 0.0515 0.2858 0.0936 − 0.0376 1.0000
ln Lt 0.1244 0.0569 − 0.0577 0.1408 − 0.1440 − 0.1282 1.0000

5
A. Imtiaz and S. Javid Resources Policy 86 (2023) 104206

Table 2
Unit root analysis.
Variable ADF Test PP Test ADF Test with Structural Break(s)

T-Statistic P. Value T-Statistic P. Value T-Statistic P. Value Break Year

ln Yt − 1.9028 (1) 0.6009 − 2.1386 (3) 0.5120 − 3.9182 (1) 0.5757 1996
ln Rt − 2.2336 (2) 0.4038 − 2.0439 (3) 0.3241 − 2.1608 (2) 0.6060 2004
ln Ft − 2.3461 (1) 0.4020 − 2.0330 (3) 0.3301 − 4.3383 (3) 0.3166 2002
ln Pt − 2.0167 (2) 0.5772 − 3.3109 (3) 0.1256 − 4.5563 (1) 0.2128 2004
ln Gt − 1.0024 (1) 0.9340 − 0.7531 (3) 0.9629 − 2.7222 (1) 0.9880 1988
ln Kt − 2.3518 (4) 0.3987 − 2.5141 (5) 0.3203 − 4.7492 (1) 0.1405 1995
ln Lt − 1.8941 (1) 0.6414 − 1.2083 (3) 0.8976 − 4.4499 (3) 0.1400 1991
ΔlnYt − 5.6708 (1)* 0.0001 − 6.7098 (3)* 0.0001 − 6.1443 (1)* 0.0001 1992
ΔlnRt − 5.0849 (1)* 0.0008 9.0974 (3)* 0.0001 − 9.1302 (1)* 0.0001 1983
ΔlnFt − 4.9728 (1)* 0.0010 − 5.2922 (3)* 0.0004 − 6.0198 (2)* 0.0001 1978
ΔlnPt − 5.9005 (1)* 0.0001 − 6.3129 (3) 0.0001 − 8.0223 (1) 0.0001 1979
ΔlnGt − 4.6245 (1)* 0.0028 − 5.9472 (3)* 0.0000 − 9.2050 (2)* 0.0001 1989
ΔlnKt − 5.3136 (1)* 0.0004 − 5.2763 (3)* 0.0004 − 5.8015 (1)* 0.0001 2011
ΔlnLt − 5.3661 (1)* 0.0004 − 6.2073 (3)* 0.0000 − 5.1855 (1)** 0.0488 1992

Note: * and ** show 1% and 5% significance level respectively. () represents lag order selection following on AIC.

⎡ ⎤ ⎡ ⎤ ⎡ ⎤
ln Yt a1 b11i b12i b13i b14i b15i b16i b17i resources. Oil prices are positively correlated with natural resources.
⎢ ln N ⎥ ⎢ a ⎥
⎢ t ⎥ ⎢ 2⎥
⎢b b b b b b b ⎥
⎢ 21i 22i 23i 24i 25i 26i 27i ⎥ Globalization, capitalization and labor force have positive correlation
⎢ ⎥ ⎢ ⎥
⎢ ln Ft ⎥ ⎢ a3 ⎥
⎢ ⎥
⎢ b31i b32i b33i b34i b35i b36i b37i ⎥ with natural resources. Oil prices, globalization and labor force are
⎢ ⎥ ⎢ ⎥ ∑ p ⎢ ⎥ negatively correlated with financial development but capitalization has
⎢ ⎥ ⎢ ⎥ ⎢ ⎥
(1− L)⎢ ln Pt ⎥ = ⎢ a4 ⎥ + (1− L)⎢ b41i b42i b43i b44i b45i b46i b46i ⎥
⎢ ⎥ ⎢ ⎥ i=1 ⎢ ⎥ positive correlation with financial development. The correlation of
⎢ ln Gt ⎥ ⎢ a5 ⎥ ⎢ b51i b52i b53i b54i b55i b56i b57i ⎥
⎢
⎢
⎥ ⎢ ⎥
⎥ ⎢ ⎥
⎢
⎢
⎥
⎥ globalization, capitalization and labor force with oil prices is positive.
⎣ ln Kt ⎦ ⎣ a6 ⎦ ⎣ b61i b62i b63i b64i b65i b66i b67i ⎦ Capitalization and labor force have negative correlation with global­
ln Lt a7 b71i b72i b73i b74i b75i b76i b77i ization. Labor force is negatively correlated with capitalization.
⎡ ⎤ ⎡ ⎤ ⎡ ⎤ (15)
lnYt− 1 α ε1t In order to examine the integrating properties of variables, we have
⎢ lnN ⎥ ⎢ β ⎥
⎢ t− 1 ⎥ ⎢ ⎥
⎢ε ⎥
⎢ 2t ⎥ applied ADF (Dickey and Fuller, 1981) and PP (Phillips and Perron,
⎢ ⎥ ⎢ ⎥
⎢ lnFt− 1 ⎥ ⎢ δ ⎥
⎢ ⎥
⎢ ε3t ⎥ 1988) unit root tests. The results are reported in Table 2. We find that
⎢ ⎥ ⎢ ⎥ ⎢ ⎥
⎢ ⎥ ⎢ ⎥ ⎢ ⎥ natural resources, financial development, oil prices, globalization, cap­
× ⎢ lnPt− 1 ⎥ + ⎢ φ ⎥ECTt− 1 + ⎢ ε4t ⎥
⎢ ⎥ ⎢ ⎥
⎢ lnGt− 1 ⎥ ⎢ φ ⎥
⎢ ⎥
⎢ ε5t ⎥ ital, labor and economic growth contain unit root problem at level
⎢
⎢
⎥ ⎢ ⎥
⎥ ⎢ ⎥
⎢ ⎥
⎢ ⎥ considering intercept and time trend. After converting all the variables
⎣ lnKt− 1 ⎦ ⎣ λ ⎦ ⎣ ε6t ⎦ in 1st, we find that natural resources, financial development, oil prices,
lnLt− 1 φ ε7t globalization, capital, labor and economic growth are found stationary.
This leads that all the variables contain unique order of integration i.e. I
Here, the difference operator is (1− L) and lagged residual term is
(1). We have also applied PP unit root and results are shown in Table 2.
ECTt− 1 . The residual terms are presented in the last by ε1t , ε2t , ε3t , ε4t , and
We find that all the variables are non-stationary at level but found sta­
ε5t . The importance of the F-statistic in the model displays the existence
tionary at 1st difference considering intercept and time trend. This
of a short-run pivotal connection by the first differences. The signifi­
confirms the robustness of empirical results and we may claim that
cance establishes the presence of a long-run causal relationship ECTt− 1 .
natural resources, financial development, oil prices, globalization, cap­
Natural resources are Granger source of economic growth if b12,i ∕ = 0∀i
ital, labor and economic growth are integrated at I (1).
and natural resources Granger bases economic growth if b21,i ∕ = 0∀i .
It is argued by Shahbaz et al. (2018) that ADF and PP unit root tests
may produce vague empirical results. ADF and PP unit root tests may not
4. Empirical findings and their discussion
contain information of single unknown structural break stems in series
while doing empirical analysis. Of course, the presence of such unknown
Table 1 presents empirical findings of descriptive statistics with
structural break stems in series is an outcome of implemented economic
correlation matrices. Our empirical analysis reveals the presence of high
policies. This lack of knowledge about such unknown structural break
variation in oil prices compared to natural resources. Financial devel­
stems in series not only affects unit root analysis but also may present
opment has less variation compared to capitalization and economic
ambiguous cointegration analysis as well as long run and short run
growth. Labor force conations less variation compare to globalization
analysis. Moreover, Granger causality approach may also provide
(index). Overall, we note that variation in economic growth is high
imprecise empirical results on directional causal association between
compared to variation exists in financial development, capital and labor
the variables due to ignorance of such unknown structural break stems
but less than variation is contained by oil prices and natural resources.
in series. We solved this issue by applying Kim and Perron (2009) unit
We also applied Jarque-Bera test to examine whether all the variables
root test which takes into consideration information of single unknown
such as economic growth, natural resources, financial development, oil
structural break in time series data. The empirical results are reported in
prices, globalization (index), capitalization and labor force have normal
Table 2. We find that economic growth, natural resources, financial
distribution. The empirical results of Jarque-Bera test reported in
development, oil prices, globalization, capital and labor are
Table 1 confirm that all the variables are normal distribution. This leads
non-stationary by considering intercept and time-trend. Kim and Perron
us for further empirical analysis. In pair-wise analysis, we note that
(2009) unit root test indicates presence of structural breaks such as
natural resources are negatively correlated with economic growth which
1996, 2004, 2002, 2004, 1988, 1995 and 1991 for economic growth,
an indication of resource curse hypothesis existence. Financial devel­
natural resources, financial development, oil prices, globalization, cap­
opment and economic growth have positive correlation. A negative
ital and labor respectively. These structural break(s) are results of eco­
correlation exists between oil prices and economic growth. Globaliza­
nomic, financial, energy, trade, capitalization and labor reforms devised
tion, capital and labor force are positively linked with economic growth.
for the period of 1972–2021 in Pakistan. In 1996, there was a shift in the
A positive correlation exists between financial development and natural
structural break pattern with the execution of the Structural

6
A. Imtiaz and S. Javid Resources Policy 86 (2023) 104206

Table 3
The bounds cointegration analysis.
Bounds Testing Approach to Cointegration Diagnostic tests

Estimated Models Lag Length Break Year F-statistic χ2NORMAL χ2ARCH χ 2RESET χ2SERIAL
Yt = f(Nt Ft , Pt , Gt , Kt , Lt ) 2, 2, 1, 1, 0, 2, 1 1996 10.705* 0.6709 0.2070 1.4151 1.0209
Nt = f(Yt , Ft , Pt , Gt , Kt , Lt ) 2, 2, 2, 2, 1, 2, 2 2004 8.8090* 0.6594 1.1415 0.4141 1.0504
Ft = f(Yt , Nt , Pt , Gt , Kt , Lt ) 2, 1, 2, 2, 1, 2, 2 2002 7.8480** 0.8878 1.1872 0.3038 0.2168
Pt = f(Yt , Nt , Ft , Gt , Kt , Lt ) 2, 1, 2, 2, 2, 2, 2 2004 2.160 0.1051 1.0605 1.3414 0.6858
Gt = f(Yt , Nt , Ft , Pt , Kt , Lt ) 2, 2, 2, 2, 1, 1, 2 1988 6.505** 0.6636 0.8520 1.4964 1.6564
Kt = f(Yt , Nt , Ft , Pt , Gt , Lt ) 2, 1, 2, 2, 2, 1, 2 1995 7.181** 0.7070 1.2187 0.1308 0.2008
Lt = f(Yt , Nt , Ft , Pt , Gt , Kt ) 2, 2, 1, 2, 2, 2, 2 1991 3.060 0.1131 1.6151 1.4433 1.0057
Significance Level Critical Values (T = 50)
Lower bounds I (0) Upper bounds I (1)
1% Level 7.337 8.643
5% Level 5.247 6.303
10% Level 4.380 5.350

Note: The asterisks *** and ** denote significant at the 1% and 5% levels, respectively. The optimal lag length is determined by the AIC. Upper and lower critical
bounds are borrowed from Narayan (2005).

Table 4 Table 5
Long run analysis. Short run analysis.
Dependent Variable = ln Yt Dependent Variable = ΔlnYt

Variable Coefficient Std. Error t-Statistic Prob. Variable Coefficient Std. Error t-Statistic Prob.
Constant − 4.6373* 0.788258 − 5.8829 0.0000 Constant 0.0047* 0.0006 7.2871 0.0000
ln Rt − 0.4884* 0.1313 − 3.7172 0.0003 ΔlnRt 0.08309** 0.04144 2.0048 0.0464
ln Ft 0.1200** 0.0245 4.8979 0.0001 ΔlnFt 0.0383* 0.0140 2.7228 0.0071
ln Pt − 0.4937* 0.0281 − 17.5476 0.0000 ΔlnPt − 0.1033* 0.0178 − 5.7939 0.0000
ln Gt 0.0462* 0.0100 4.6207 0.0000 ΔlnGt − 0.0107* 0.0040 − 2.6546 0.0086
ln Kt 0.7251* 0.0685 10.5721 0.0000 ΔlnKt − 0.0093 0.0624 − 0.1490 0.8817
ln Lt 0.2306* 0.0193 11.9135 0.0000 ΔlnLt − 0.1060 0.6163 − 0.1720 0.8636
D1996 − 0.0323*** 0.0178 − 1.8085 0.0721 D1996 − 0.0237 1.1453 − 0.0207 0.9835
R2 0.9734 ECMt− 1 − 0.0571* 0.0109 − 5.2385 0.0001
F-Statistic 10.1508* R2 0.2562
Prob. Value 0.0000 F-Statistic 8.1413*
D. W Test Prob. Value 0.0000
Stability Analysis D. W Test 1.7907
Test F-statistic P. Value Stability Analysis
χ2NORMAL 1.8248 0.4015 Test F-statistic P. Value
χ2SERIAL 0.2316 0.8060 χ2NORMAL 0.5800 0.7482
χ2HETERO 0.4510 0.8636 χ2SERIAL 0.2036 0.8167
χ2ARCH 1.2174 0.3225 χ2HETERO 0.9306 0.6190
χ2RESET 2.0300 0.1450 χ2ARCH 1.2911 0.2618
CUSUM Stable χ2RESET 1.9028 0.1466
CUSUMSQ Stable CUSUM Stable
CUSUMSQ Stable
Note: 1%, 5% and 10% level of significance is shown by *, ** and ***
respectively. Note: 1%, 5% and 10% level of significance is shown by *, ** and ***
respectively.
Adjustments Program (SAP) Phase II (1996–2000), costing $10 billion.
The purpose was to promote service delivery by private and order of integration i.e. I (1). This unique integrating order leads us for
non-government organizations (NGOs) to boost significant participation applying the bounds testing approach for examining either cointegration
in the community. Meanwhile, domestic debt rose dramatically from exists between the variables or not. Before moving for bounds testing
290 billion in 1988 to 900 billion by 1996, a substantial reason for the analysis, we need to choose appropriate lag length of the variables. We
rapid increase in interest expenditures. Pakistan was also confronted follow Akiake information criterion (AIC) for choosing leg length
with the crisis of foreign exchange position in 1996. The liberalization of because it chooses appropriate lag length of the variables accurately
the foreign exchange system and opening of accounts in foreign cur­ compare to Schwartz Bayesian criteria (SBC) mentioned by Lütkepohl
rencies increased the balance of payments; however, Pakistan did not (2006) and Acquah (2010). So, we applied the unrestricted VAR
manage to keep this level because of a drop in foreign aid, as Pakistan approach and reported the appropriate leg length of each variable
did not meet the IMF goals. Pakistan was able to solve this problem by included for empirical analysis in column 2 of Table 3. The dummy
redirecting worker remittances into accounts in foreign exchange to variable is added to calculate F-statistic by considering structural break
boost deposits of the amount of $4 billion in the year 1996. After 1st twigs in the series based on structural break unit root test by Kim and
differencing, we that economic growth, natural resources, financial Perron (2009). The cointegration is absent if calculated F-statistic is
development, oil prices, globalization, capital and labor are found sta­ lower than lower critical bound. The cointegration is confirmed if
tionary by considering intercept and time trend in the presence of single calculated F-statistic is more than upper critical bound. There would be
unknown structural break in the series. It is noted that Kim and Perron no decision if calculated F-statistic remains between lower and upper
(2009) unit root test produced similar empirical findings as reported by critical bounds. The empirical results of ARDL bounds testing are re­
ADF and PP unit root tests. This confirms the robustness of empirical ported in Table 3 and we noted that calculated F-statistic crosses upper
results. critical as we treated economic growth, natural resources, financial
It is confirmed that economic growth, natural resources, financial development, globalization and capitalization as dependent variable
development, oil prices, globalization, capital and labor have unique and it is statistically significant at 1% and 5% levels of significance

7
A. Imtiaz and S. Javid
respectively. This leads us to reject null hypothesis of no cointegration
between the variables i.e. we must accept alternative hypothesis of
cointegration. On other hand, we used oil prices and labor force as
dependent variable(s) and found that calculated F-statistic is lower than
lower critical bounds which further guides us to accept null hypothesis
of no cointegration. Our empirical results reported in Table 5 confirm
the existence of five cointegrating vectors. This presence of five coin­
tegrating vectors confirm the existence of cointegration between the
variables by considering the unknown structural break stems in the se­
ries over the period of 1972–2021. This further validates the presence of
long run association between economic growth, natural resources,
financial development, oil prices, globalization, capitalization and labor
force for the period of 1972–2021 in case of Pakistan.
After having confirmed the presence of cointegration between the
variables, we applied ordinary least square approach to examine long
run impact of natural resources, financial development, oil prices,
globalization, capitalization and labor force on economic growth over
the period of 1972–2021. So, the long run results are reported in Tanle-
4. We find that natural resources have negative effect on economic
growth and it is significant at 1% significance level. This indicates that
keeping all else same, a 1% increase in natural resources decline eco­
nomic growth by 0.4884%. This adverse impact of natural resources on
economic growth confirms the presence of natural resources curse
hypothesis.
The association between financial development and economic
growth is positive and statistically significant at 5% level of significance.
It is noted that financial development stimulates economic growth. All
else is constant, a 1% increase in financial development will lead eco­
nomic growth by 0.1200%. This confirms the existence of supply-side
hypothesis i.e. Finance-led growth hypothesis. This relationship be­
tween oil prices and economic growth is negative and it is statistically
significant at 1%. It shows that a rise in oil prices in internationally affect
economic growth inversely. Rise in oil prices declines economic growth
by adversely affecting economic activity. It is noted that a 1% rise in oil
prices decline economic growth by 0.4937%, keeping other things
constant. Globalization is positively and significantly linked with eco­
nomic growth at 1% level of significance. This shows that globalization
may affect economic growth via income effect, technique effect and
comparative advantage effect. Keeping other things constant, a 1% rise
in globalization leads economic growth by 0.0462%. Capitalization has
positive effect on economic growth which is statistically significant at
1% significance level. A 1% increase in capital improves economic
growth by 0.7251%, all else is same. A positive and statistically signif­
icant association is also found between labor force and economic
growth. We see that by keeping other things constant, a 1% increase in
labor force increases economic growth 0.2306%.
The effect of dummy variable is negative and statistically significant
at 10% level of significance. This data demonstrates that the Structural
Adjustments Programme (SAP) Phase II (1996–2000) was improperly
implemented and had no positive economic effects on Pakistan. The
Structural Adjustments Programme (SAP) Phase II implementation
(1996–2000) negatively influenced economic growth for several rea­
sons, including poor structural reform attempts that resulted in eco­
nomic cycles that led to more recessionary results. Tax evasion and the
growth of an underground economy caused the already shrinking tax
base, which was subject to increased taxation, to shrink even further.
Public investments in infrastructure and human capital have decreased
due to declining budgetary revenue, harming the profitability of private
sector investments and production and worsening income weakness.
Double-digit inflation required nominal depreciation, which in turn
fueled the inflationary cycle. The Pakistani government was compelled
to apply wage and price controls as part of SAP phase II, which led to
shortages and poor resource allocation, further stifling economic
growth. A further decrease in bank profitability was brought about by
disintermediation and a sharp decline in deposit rates inside banking
systems. SAP Phase II mandated the privatization of state-owned
8
Resources Policy 86 (2023) 104206
businesses. However, this process was hampered by corruption and poor
management, which led to the closure of some essential industries and
the loss of jobs, significantly increasing social unrest. Pakistan was under
enormous financial strain when the program’s emphasis on budget-
balancing led to heavy borrowing from external sources, increasing
the country’s external debt burden. Devaluing the currency resulted in
higher import prices and reduced consumer welfare benefits to correct
balance of payment issues. Table 4 also presents the diagnostic analysis.
We find that normal distribution of residual term is normally distrib­
uted. It indicates that normal distribution of residual term confirms a
constant variance with zero mean value. The ARCH test confirms the
absence of auto-conditional homoscedasticity and similar conclusion is
drawn for white homoscedasticity. The Remsay Reset test analysis
confirms that the empirical model is well constructed. Additionally, the
graphs of CUSUM and CUSUMsq tests also confirm the reliability of long
run empirical analysis.
The results of short run analysis are reported in Table 5. We find that
natural resources have positive effect on economic growth and it is
statistically significant at 5% level of significance. The relationship be­
tween financial development and economic growth is positive and sig­
nificant at 1% level of significance. Oil prices are negatively and
significantly linked with economic growth significantly. Globalization
also has negative but significant effect on economic growth. Globaliza­
tion may hinder economic growth in Pakistan in the short run for various
reasons, most importantly, increased external competition. As Pakistan
becomes more open to foreign trade, local industries will experience
more competition from imported goods, which could force them to close
or reduce their size and ultimately impede Pakistan’s economic growth.
Another barrier to economic progress is structural limitations. Due to a
lack of access to cutting-edge technology, capital resources, and highly
qualified people, Pakistani businesses cannot sometime compete
worldwide. As skilled workers seek better opportunities abroad, glob­
alization may lead to brain drain and capital flight. Due to globalization,
governments are under more pressure to enact structural reforms that
might not immediately benefit local populations, such as reducing
public spending and subsidies to specific industries, which could nega­
tively impact economic growth.
Capitalization affects economic growth negatively but insignifi­
cantly. The short-term effects of capital accumulation on Pakistan’s
economic growth may be adverse and negligible for various reasons. The
ineffective and unproductive use of capital is one of the leading causes.
Although, capital inflows can increase physical investment, they might
not result in higher productivity without the right institutional frame­
works and human capital development. Money invested in unsuccessful
businesses or initiatives could only yield minimal or negative returns,
which would have no discernible impact on economic growth. The
limited capacity of an economy to absorb capital may also contribute to
the short-term unfavorable and negligible effects of capital on economic
growth. Pakistan might not have the systems and tools necessary to
properly benefit from capital investments, which would result in a
misallocation of existing resources. Effective resource distribution may
be hampered by structure-induced limits such as restricted financial
access, inadequate infrastructure, and administrative roadblocks. Mac­
roeconomic imbalances may also limit the contribution of capital to
economic expansion. Excessive capital inflows may cause the currency
rate to rise, reducing local goods’ competitiveness and damaging ex­
ports. It would aggravate the current account deficit and have a negative
impact on economic growth overall.
Labor force also has a negative but insignificant effect on economic
growth. The impact of dummy is also negative and it is statistically
insignificant. Labor force’s short-term negative and limited impact on
economic growth may result of several factors in Pakistan. One of these
reasons may be insufficient skills and education among labor force to
satisfy the requirements of the modern economy. Poor funding, obsolete
curricula, low teacher credentials, and a lack of school’s plague Paki­
stan’s education system. Consequently, majority of labor force lacks
A. Imtiaz and S. Javid Resources Policy 86 (2023) 104206

Fig. 1. CUSUM

Fig. 2. CUSUM of squares.

Table 6
The VECM granger causality analysis.
Dependent Direction of Causality
Variable
Short Run Long Run

ΔlnYt− 1 ΔlnNt− 1 ΔlnFt− 1 ΔlnPt− 1 ΔlnGt− 1 ΔlnKt− 1 ΔlnLt− 1 Break ECMt− 1

Year

ΔlnYt …. 0.0389 2.4670** 4.1490** 0.1427 0.3884 0.4986 1996 − 0.0717*

[0.9616] [0.0050] [0.0250] [0.8675] [0.6812] [0.6012] [-3.5050]
ΔlnNt 0.6056 …. 0.4497 0.5849 5.0805** 2.5441*** 1.9172 2004 − 0.0517*
[0.5519] [0.6418] [0.5630] [0.0121] [0.0943] [0.1635] [-2.8523]
ΔlnFt 1.3030 0.1605 …. 0.7851 6.0296* 1.0790 0.9924 2002 − 0.0564*
[0.2857] [0.3262] [0.4646] [0.0060] [0.3520] [0.3818] [-3.2010]
ΔlnPt 4.1039** 5.7478* 0.8046 …. 2.3371 8.7869* 5.8065* 2004 − 0.0585
[0.0259] [0.0074] [0.4561] [0.1129] [0.0009] [0.0071] [-1.1472]
ΔlnGt 0.1519 1.0747 0.0160 0.5050 …. 0.0364 0.1831 1988 − 0.0153*
[0.8597] [0.3534] [0.9841] [0.6082] [0.9643] [0.8335] [-3.7025]
ΔlnKt 3.4062** 0.1021 2.0698 4.0597** 0.2787 …. 0.0270 1995 − 0.0718*
[0.0456] [0.9033] [0.1428] [0.0173] [0.7585] [0.9733] [-4.7979]
ΔlnLt 1.3896 0.6997 2.2748 2.2961** 0.3785 0.7089 …. 1991 − 0.0267
[0.2638] [0.5042] [0.1192] [0.0163] [0.6879] [0.4997] [-1.0953]

Note: * and ** show significance at 1% and 5% levels of significance.

with skills for effective contribution to developing high-value industries,
such as technology, engineering, and other high-value manufacturing
sectors. Labor force participation tends to be low-paying, informal jobs
such as agriculture, small business ownership, or other fields that do not
contribute significantly to economic development. Labor mobilization is
frequently hampered by various reasons including regulatory barriers to
starting firms or seeking employment, restricted access to money, cul­
tural norms, and gender biases. Macroeconomic factors such as inflation
and economic disruptions can devastate labor market, resulting in fewer
job opportunities.
Table 5 shows the diagnostic analysis and we find that non-normal
distribution of residual term is absent i.e. residual term contains
normal distribution with a constant variance and zero-mean value. The
absence of serial correlation and auto-regressive conditional homosce­
dasticity is confirmed. Similarly, there is no indication of white heter­
oskedasticity. The functional form of empirical model is well-
articulated. We applied CUSUM and CUSUMsq tests to examine the
reliability and robustness of short run analysis following Pesaran and

9
A. Imtiaz and S. Javid
Shin (1999). Figure-1 and 2 present results of CUSUM and CUSUMsq and
it is noted that graphs of CUSUM and CUSUMsq seem to accept null
hypothesis as plots of CUSUM and CUSUMsq remain between critical
bounds. Based on empirical analysis, we confirm the reliability of short
run empirical results.
Table 6 shows short run and long run causal relationship between the
variables. In long run, we find the presence of feedback effect is
confirmed between natural resources and economic growth. This con­
firms that economic growth affects natural resources and in return,
natural resources affect economic growth. Natural resource availability
and accessibility are necessary for economic growth; economic activities
open access to such resources, permitting their exploitation, consump­
tion, and value addition. The fact that bidirectional causality exists
draws attention to the importance of environmentally sustainable
practices for the growth of the economy over the long run. Furthermore,
this fact emphasizes the importance of developing policies and strategies
that balance economic expansion with natural resource preservation
and protection.
Financial development causes natural resources cause financial
development in Granger sense. The feedback effect exists between
financial development and natural resources implies that The exploita­
tion, management, and availability of natural resources can all be
influenced by financial development. On one hand, financial develop­
ment could potentially render it more feasible to manage natural re­
sources sustainably; on other hand, it might make it harder (Zahoor
et al., 2022). Financial development can support businesses that
responsibly utilize natural resources by enhancing financial intermedi­
ation, expanding credit availability, and promoting investment. Finan­
cial development offers finances for deploying technology to reduce
negative environmental effects of natural resource extraction. Still,
availability can also have an impact on financial development. However,
relying on natural resources as the primary source of economic growth
can lead to many issues that impede long-term financial development,
such as price volatility, resource depletion, and environmental
degradation.
The bidirectional causal association is noted between financial
development and economic growth. This bidirectional causality be­
tween economic growth and financial development reveals that econo­
my’s growth influences the financial sector’s progress, which in turn
affects economy’s growth. Economic growth increases resource avail­
ability, while financial development improves resource allocation and
mobilization efficiencies, which are essential variables in accelerating
economic expansion. As a result, economic growth and financial
development are closely intertwined. Financial development promotes
economic growth by increasing access to money, mobilizing savings,
and allocating capital more efficiently. As a result, bidirectional cau­
sality emphasizes the symbiotic relationship between economic growth
and financial development, highlighting their reciprocal nature while
emphasizing how policies that promote financial development
contribute to economic growth and vice versa. A balance between the
two is required to sustain equitable economic growth. Oil prices Granger
cause economic growth but similar is not true from opposite side. This
unidirectional causality running from oil prices to economic growth
reveals that Oil price increases can cause inflation, causing consumers to
spend less, firms to cut earnings, and investors uncertain of their in­
vestments, leading to slow economic growth or recession in strongly
dependent nations that import petroleum. Additionally, an increase may
raise production costs, raising the cost of goods and services, decreasing
demand, and ultimately lowering overall economic activity.
The relationship between globalization and economic growth is
bidirectional i.e. globalization causes economic growth and in return,
economic growth causes globalization in Granger sense. There is evi­
dence to suggest that Economic growth can promote globalization, and
globalization can fuel economic growth. There are multiple ways that
globalization could drive economic growth. It can boost competition,
innovation, and specialization by opening up new markets for trade and
10
Resources Policy 86 (2023) 104206
investment. Globalization fosters cross-border information transfer,
technological diffusion, and human capital development, all contrib­
uting to increased productivity, efficiency, and competitiveness. Eco­
nomic growth can also contribute to globalization through its effects on
wealth accumulation and demand for products and services, with
wealthier economies more likely to engage in international trade and
investment and adopt new technologies and practices. Furthermore,
economic growth generates a virtuous cycle of production, consump­
tion, foreign investments, talents, and ideas, which may result in
globalization.
The feedback effect exists between capitalization and economic
growth. This shows that economic growth and capitalization are caus­
ally related in both directions, since one element influences the other.
On one hand, capitalization may encourage economic development by
expanding the amount of money (both debt and equity) that are avail­
able for use in financing new projects, boosting output, acquiring assets,
and creating new technologies. By lowering the cost of borrowing for
businesses, the availability of cash may also encourage investment and
innovation. Access to international financial markets is another benefit
of capitalization, which may diversify funding sources and encourage
risk-sharing. On other hand, economic expansion may boost capitali­
zation by increasing investment possibilities and return rates. Increased
capital inflows and increased investor confidence are two factors that
might contribute to an expanding economy. Economic expansion may
also raise the value of assets like stocks and real estate, which can
enhance investor wealth and serve as a powerful inducement for them to
join in capital markets. Overall, capitalization and economic growth
have a bidirectional causal relationship that plays a significant role in
modern economies. Labor force Granger causes economic growth but
similar is not true from opposite side. This unidirectional correlation
between labor force and economic growth suggests that workforce
quantity and quality changes directly influence economic growth.
Increased productivity, production, and economic output result from
more employees joining the workforce or upgrading their abilities,
propel economic progress and hence economic growth.
In short run, neutral effect is found between natural resources and
economic growth. Financial development Granger causes economic
growth but economic growth does not Granger cause financial devel­
opment. The feedback effect exists between oil prices and economic
growth. Either globalization causes economic growth or economic
growth cause globalization in Granger sense. The unidirectional cau­
sality is noted running economic growth to capitalization. Labor force
Granger causes economic growth but similar is not true from opposite
side. The unidirectional causality is found running globalization to
natural resources. The feedback effect is found between capitalization
and economic growth. The unidirectional causal relationship is noted
running from globalization to financial development. The bidirectional
causality is found between capitalization (labor force) and oil prices.
5. Discussion
Our analysis underscores the dynamics within the variables and their
relationships, shedding light on market volatility, economic growth
patterns, and the influence of policy changes. These findings provide a
solid foundation for further research into the economic and financial
landscape of Pakistan. Our ARDL bounds testing analysis, accounting for
structural breaks, reaffirms the existence of five cointegrating vectors.
This finding signifies a significant and enduring long-term relationship
between economic growth, natural resources, financial development,
globalization, and capitalization, contributing valuable insights into the
economic dynamics of Pakistan during the study period.
Countries reliant on extracting resources face economic fluctuations
due to global price changes. An abundance of natural resources
adversely influence economic growth (Sachs and Warner, 1995). In
addition, this high-stakes approach can lead to conflict and corruption
since entities compete to control precious resources, undermining
A. Imtiaz and S. Javid
stability and economic growth (Collier and Hoeffler, 2004). Natural
resources can negatively affect economic growth in Pakistan in several
ways. For example, Pakistan ultimately depends on its natural resources,
including gas, oil, and coal. This dependence severely impacts the di­
versity of its economy, which is essential for robust growth and devel­
opment. The extreme extraction of natural resources is contributing to a
slow deterioration of environment in Pakistan. Land degradation is
becoming a growing threat to a country’s well-being and economic
growth. Soil erosion, water shortage, and environmental concerns all
pose threats that hovers the well-being as well as future development.
Pakistan lacks effective management methods that ensure the optimal
utilization of its natural resources. Authorities have not formulated any
policy that encourages the sustainable use of resources, leading to
manufacturing process inefficiencies and waste production.
Rent-seeking is a significant obstacle to the economy of Pakistan. Crony
capitalists with access to natural resources frequently monopolize
markets, leaving little opportunities for small businesses to compete.
Market cartelization hinders competition, hampers innovation, and
slows productivity which in resulting, negatively impacts economic
growth. This empirical finding is consistent with Gylfason (2001) who
reported that natural resources decline economic growth by affecting
economic activity such as reduction in competitiveness in other areas of
the economy, a lack of diversification, and rent-seeking behavior which
restricts productivity and innovation. Moreover, Sachs and Warner
(1995) discovered that natural resource-rich countries frequently suffer
from a lack of economic diversification, which can lead to a lack of in­
vestment in other sectors of the economy, as well as a decline in pro­
ductivity and competitiveness. Furthermore, Ross (1999) found that
natural resource-rich countries often face political insecurity, resulting
in lower economic growth and higher levels of inequality. Political
insecurity can deter foreign investment, stymie economic development,
and promote an environment conducive to corruption and rent-seeking
behavior. On contrary, Cuddington (1988) identified that natural re­
sources positively impact economic growth in developing nations.
Brunnschweiler and Bulte (2008) additionally discovered that solid in­
stitutions, such as a strong rule of law and low corruption, minimized the
adverse effect of natural resources on economic growth.
Financial development can contribute significantly to economic
growth by increasing access to finance, encouraging investment in
economic activities, and expanding the pool of available capital avail­
able for businesses and individuals to use for new ventures. Accessing
funding may assist businesses in purchasing equipment, developing
workforce size, or doing R&D. Additionally, increasing access to mobile
banking, internet banking, or microfinance services financial develop­
ment can aid financial inclusion throughout Pakistan. Financial devel­
opment can reduce reliance on locally constrained financing sources by
creating an environment conducive to innovation and entrepreneurship,
helping the expansion of small and medium enterprises (SMEs).
Furthermore, giving SMEs access to credit, technical support, and other
forms of support may encourage their expansion. By fostering the
growth of strong regulatory frameworks and institutions, supporting a
robust banking industry, and fostering the growth of capital markets,
financial development can help maintain financial stability. A finan­
cially developed economy utilizes its resources more efficiently because
of financial integration, the transmission of loanable funds, better
functioning of a financial system, and the availability of investment
opportunities for financial intermediaries. All factors as mentioned
earlier, play a vital role in the sustainable economic growth of an
economy. Financial development consequently plays a significant part
in dynamic, sustained economic growth (Qamri et al., 2022). Financial
development positively adds to economic growth by enlightening access
to credit, endorsing entrepreneurial activity and boosting innovation,
and assisting the efficient allocation of capital (Levine, 2005). Addi­
tionally, financial systems support strengthening monetary policy
effectiveness, diminish information asymmetry, and foster stability
(Beck et al., 2000). This empirical result is consistent with Levine
11
Resources Policy 86 (2023) 104206
(1997), who introduced the finance-growth nexus, showing how finan­
cial development stimulates economic growth through many straits,
such as growing resource distribution, promoting innovation, and
decreasing transaction costs. Many Studies have provided evidence of
the positive association between economic growth and financial devel­
opment (Garcia-Herrero et al., 2013; Beck et al., 2018; Claessens and
Laeven, 2020; Yang and Khan, 2022).
Multiple factors can threaten Pakistan’s economic growth. Due to its
limited domestic oil production, Pakistan relies heavily on imports as its
energy needs exceed domestic production capacity. Therefore, when oil
prices increase in global market, it adversely affects Pakistan’s economy
as its cost of operating businesses increases due to this trend, such as
transportation companies that rely heavily on fuel. Rising oil costs could
wreak havoc in Pakistan by inducing inflation, significantly diminishing
people’s purchasing power. When oil costs increase, production costs
increase and retail prices tend to go up; without proper management,
this inflationary cycle could have severe repercussions for consumer
spending, investment decisions and firm performance, ultimately
diminishing consumer demand, restricting investments and hurting
firms. Furthermore, increased oil costs force Pakistan’s currency to
depreciate as more money must be spent importing expensive crude and
draining foreign exchange reserves faster. A feeble exchange rate can
increase the price of imports, raise the cost of living, and reduce the
competitiveness of exporters. High oil prices may also cause Pakistan to
run a budget deficit as the country spends more money on fuel imports.
This spending may reduce the amount of money available for social
welfare initiatives, educational initiatives, and other crucial services,
such as lowering investment, lowering investment opportunities, and
damaging enterprises. High oil prices may cause Pakistan’s currency to
depreciate. This occurs because the nation must spend more money to
import pricey oil, which causes a depletion of foreign exchange reserves.
Oil prices shock is adverse supply side shocks which increase the cost of
production of firms. Consequently firms decrease their production and
labor demand which ultimately surge the unemployment rate in an
economy. Prices of oil have an adverse effect on economies in various
ways. First, higher oil prices raise input costs for businesses and
households, reducing consumption and investment (Kilian, 2014).
Additionally, high oil costs can trigger inflationary pressures, prompting
central banks to raise interest rates and further diminishing aggregate
demand (Hamilton, 1983). Thirdly, fluctuating oil prices could make
economic instability compromising trust and investments (Barsky and
Kilian, 2002). Furthermore, countries that export oil are particularly
vulnerable to price changes as changes to revenue could create macro­
economic instability and fiscal disparities (Corden and Neary, 1982).
This empirical finding is consistent with Hamilton (1983), who
concluded a resilient connection between fluctuations in oil prices and
US economic downturns. Mork (1989) also expanded his investigation to
encompass other OECD states and revealed how fluctuating oil prices
adversely affect economic growth. Kilian and Vigfusson (2011) and
Barsky and Kilian (2002) have shed light on this relationship and illu­
minated how oil price fluctuations alter supply-and-demand dynamics,
ultimately impacting economic activity growth.
Globalization has had numerous beneficial ramifications on Paki­
stan’s economy. Globalization has allowed Pakistan to engage in inter­
national trade and gain entry to new markets for its goods. Pakistan has
seen its economy thrive thanks to increased foreign investment, more
jobs created and new sources of income generated through globaliza­
tion. Pakistan is now drawing in international capital, thereby
strengthening its economy further. Foreign investment has spurred
economic expansion, opened new sectors, and modernized Pakistan’s
infrastructure. Thanks to globalization, industrialized nations’ knowl­
edge, expertise, and technology have more easily reached Pakistan.
Pakistan has taken advantage of an exchange of knowledge and skills to
adopt cutting-edge technologies that have enhanced productivity and
efficiency, leading to greater productivity. Globalization has helped
Pakistan compete on the world stage, spurring development and raising
A. Imtiaz and S. Javid
living standards among its people. Domestic businesses have had to
adapt in terms of efficiency, innovation, and competitiveness in
response to increased competition, leading to higher-quality goods and
services from domestic providers. Pakistan’s services industry has
greatly benefitted from globalization; software development, IT support
services, and customer support are just some of the industries involved
here. Furthermore, this has increased employment and opportunities for
making money leading to economic growth in Pakistan. Similarly, Ali
and Munir (2022) reported that more liberal economies are involved in
more international transactions in terms of exports and imports. Dollar
and Kraay (2004) indicated that globalization affects economic growth
by driving trade, stimulating investment, encouraging technological
innovation, and spreading knowledge across borders. Furthermore,
globalization creates opportunities to specialize through economies of
scale for reduced production costs and greater competition (Rodrik,
1997, 1998, 2011). Moreover, globalization could expand access to
foreign capital while diversifying demand sources reducing macroeco­
nomic volatility, and improving financial stability (Aizenman and Noy,
2009). Globalization’s impact on economic growth varies between na­
tions depending on their level of development, institutional quality, and
economic structure (Gorg and Greenaway, 2004; Bhagwati, 2004). On
other hand, (Stiglitz, 2002; Rodrik, 1997, 2011) showed that global­
ization’s detrimental repercussions, including increasing inequality in
income distribution, environmental degradation, and decline of cultural
diversity have inverse effect on economic growth. Such disparate per­
spectives emphasize the necessity of considering all possible ways
globalization impacts economic growth while developing tailored pol­
icies for each context to optimize gains while mitigating the potentially
opposing effects of globalization. Globalization’s positive aspects, such
as greater access to international markets, technology transfer, and
increased efficiency through specialization, have added to growth across
many countries (Helpman, 2011). This empirical result is similar to
Tamayo (2021), who conducted a meta-analysis that explored the pos­
itive relationship between globalization and economic growth. Author
discovered a strong positive correlation between the two by examining
empirical evidence on its effect across regions. He found globalization’s
positive impact on economic growth in developed and developing na­
tions via income, technique, and comparative advantage effects.
Economic growth and capitalization are causally related in both di­
rections, since one element influences the other. On one hand, capital­
ization may encourage economic development by expanding the amount
of money (both debt and equity) that are available for use in financing
new projects, boosting output, acquiring assets, and creating new
technologies. By lowering the cost of borrowing for businesses, the
availability of cash may also encourage investment and innovation.
Access to international financial markets is another benefit of capitali­
zation, which may diversify funding sources and encourage risk-sharing.
On the other hand, economic expansion may boost capitalization by
increasing investment possibilities and return rates. Increased capital
inflows and increased investor confidence are two factors that might
contribute to an expanding economy. Economic expansion may also
raise the value of assets like stocks and real estate, which can enhance
investor wealth and serve as a powerful inducement for them to join in
capital markets. Overall, capitalization and economic growth have a
bidirectional causal relationship that plays a significant role in modern
economies. Similarly, Ali and Munir (2022) showed that countries with
higher per-worker gross fixed capital formation enjoy high growth rate
because of more investment in various sectors of the economy. Capi­
talization is essential in economic development by increasing capital for
investment and innovation and stimulating technological progress
(Demirguc-Kunt and Levine, 2008). Capital markets also assist as a
resource allocation platform, letting investors discover promising ven­
tures, leading to improved resource utilization (Rajan and Zingales,
1998). Furthermore, they promote financial inclusion by giving access
to financial services that support economic activity (Beck et al., 2013).
This empirical finding is similar and consistent with many studies
12
Resources Policy 86 (2023) 104206
demonstrating its centrality for driving economic growth (Solow, 1956;
Shahbaz, 2012). Solow (1956) established in his groundbreaking neo­
classical growth model work that capital growth is the cornerstone of
sustainable economic growth. Barro (1991) demonstrated how human
and physical capital investment leads to faster economic growth across
many nations and timeframes. Levine (1997) conducted an extensive
research analysis on this correlation and reported that capital has pos­
itive effect on economic growth.
Labor force plays several different roles in economic growth of
Pakistan. A more significant labor force can increase productivity, which
raises output and improves economic growth. It also means that more
goods and services are produced, which increases GDP as a whole.
Additionally, a more significant labor force promotes technological
advancement by fostering innovation, skill development, and the
adoption of new technologies, all of which boost Pakistan’s overall GDP
growth and raise GDP per capita as a result of workers’ increased ability
to innovate, which in turn promotes economic growth at large. The labor
force supports entrepreneurship in Pakistan. A motivated workforce
may create new businesses and sectors and encourage economic growth
by delivering cutting-edge services. A more significant labor force also
indicates that there will be more individuals with disposable income,
which can increase domestic consumption, which in turn can stimulate
the demand for products and services and propel economic growth. With
a large labor population, Pakistan is more appealing to foreign investors
because they can access local knowledge, skill sets, and preferences that
benefit the economy. This empirical finding aligns with numerous others
highlighting how increasing labor force can spur economic growth
(Barro and Sala-i-Martin, 1995; Temple, 1999). Temple (1999) con­
ducted an exhaustive review of research studies and concluded that
ample evidence supported its relationship. Labor force participation
positively contributes to economic growth by producing goods and
services that generate technological innovation while stimulating con­
sumption (Mankiw et al., 1992). A skilled, educated workforce could
improve productivity while promoting innovation for sustainable eco­
nomic expansion (Barro and Sala-i-Martin, 1995). Furthermore, partic­
ipation in labor force will boost the number of workers while
simultaneously creating entrepreneurial opportunities and economic
development (Mankiw et al., 1992).
6. Conclusion and policy implications
6.1. Conclusion
This paper examined the relationship between natural resource and
economic growth by incorporating vital role of financial development,
globalization and oil prices into augmented production function
covering the period of 1972–2021. In doing so, we applied unit root test,
ARDL bounds testing and Granger causality approach by incorporating
information of unknown structural break in the series. Our empirical
results indicate that all the variables have unique order of integration i.
e. I (1). The long run relationship between economic growth and its
determined is confirmed by ARDL bounds testing to cointegration.
Further, it is noted that nature resource curse hypothesis is confirmed i.
e. natural resources abundance has inverse effect on economic growth.
Financial development is positively linked with economic growth. Oil
prices decline economic growth. Globalization has positive effect on
economic growth. Capitalization and labor force are positively linked
with economic growth. The implementation of SAP phase-II was inef­
fective and has negative effect on economic growth. The causality
analysis reveals the presence of feedback effect between natural re­
sources and economic growth. Financial development causes economic
growth and economic growth causes financial development in Granger
sense. The bidirectional causality exists between globalization and
economic growth. The relationship between capitalization and eco­
nomic growth is bidirectional. Oil prices Granger cause economic
growth. The unidirectional causality is confirmed running from labor
A. Imtiaz and S. Javid
force to economic growth.
6.2. Policy implications
Pakistan is endowed with profuse pool of natural resources and
commensurate biodiversity. Nevertheless, underutilization of these
natural resources is a hindrance to the way to achieve sustainable
development. There are a number of avenues, through which such un­
derutilization can be averted. The policymakers in Pakistan requires to
ponder upon substantially channelizing the infrastructural investments,
i.e., toward transportation, energy, and communication. It might be a
necessary way to optimize the extraction and consumption of natural
resources. This developmental trajectory might as well help in trans­
forming the businesses to be cost-effective, and thereby, being able to
make it an attractive investment destination. Along with this, policy­
makers need to channelize investments toward agricultural develop­
ment, as it caters substantially toward the labor market in Pakistan.
These investments are expected to invite contemporary agricultural
practices to improve crop yield. This might in turn result in higher value
proposition in this sector, and subsequently, the agricultural exports
might rise. A policy intervention of similar kind is necessary for the
natural gas sector in Pakistan. Planned and pre-mediated utilization of
this sector might solve the energy security issues, and it can also help in
reducing the dependence on the fuel import to satisfy the domestic en­
ergy demand.
The prevailing growth pattern in Pakistan is evidently exerting
negative environmental externalities. The depletion of forest and water
resources are diverted and consumed by the industrial growth trajec­
tory. One way to prevent this from happening is to reinforce the public
property rights, so that the unwarranted utilization of these resources is
minimized. This policy intervention might prove to be useful to main­
taining the intergenerational equity. Now, natural resources being the
driver of economic growth in Pakistan, these resources can serve as a
potential investment destination. The international firms might be
endowed with liberal tax rebates and easing of licensing process. Apart
from the capital investments, these firms can also bring the technolog­
ical capabilities necessary for achieving economic growth and devel­
opment. These investments and technological advancements,
complemented by the policy interventions, might help in optimizing the
resource utilization and achieving the desired economic growth. This
policy initiative needs to take account of the social and environmental
aspects, so as to ensure the natural resource-driven growth to be inclu­
sive in nature. Embarking on a multi-stakeholder approach can create
the foundation to achieve the sustainable development.
One of the major policy instruments in materializing this policy
initiative is reorienting the financial development process. This reor­
ientation can be achieved through easing the access to capital, bringing
financial inclusivity, improving the access to foreign markets, catalyzing
the development of the small and medium scale enterprises, stabilizing
the domestic financial system, and facilitation of the entrepreneurship
development by endorsing innovation. The public and private sectors
require harmonizing for facilitating the reorientation in the financial
development avenues, easing the access to finances, and creating a ho­
listic business environment for ensuring the economic growth and
improving the per capita income of the citizens. While carrying out this
initiative, the dependence of the Pakistan economy on the imported
crude oil should be minimized. The major reason behind this is not only
the fiscal pressure the country might encounter owing to the oil price
fluctuations in the international market, but also the long-term energy
security. Sustenance of the industrial activities and ensuring sustainable
development is conditional upon the energy security, and shifting the
energy dependence on domestically developed renewable energy solu­
tions might solve this purpose. So, financial development channels need
to take account of this aspect.
Although, natural resources are crucial for assuring and catalyzing
economic growth in Pakistan, it is necessary to maintain a balance for
13
Resources Policy 86 (2023) 104206
safeguarding the intergenerational equity. An equilibrium between
natural resource extraction and growth-oriented financial development
needs to be upheld for achieving the sustainable development objective.
This entails developing revamped sustainable resource management
guidelines, and aligning the financial development reorientation along
these guidelines.(Zakari et al., 2023) While introspecting on domestic
aspects, building ties with the international counterparts is also impor­
tant to improve trade relations. Globalization can play a significant role
in achieving this. Expanding the scope of economic, social, cultural, and
political globalization might help in developing and strengthening the
international relations, which can have a direct spillover effect on the
economic prospect of the nation. This spillover effect can be seen in
terms of accumulating foreign capital investment for infrastructural
development, job creation, and creation of new market ecosystem (Liu
et al., 2023). These aspects might converge to economic growth. Mate­
rializing this economic prospect requires the skilled labor force. This
labor force can both directly and indirectly contribute to economic
growth by catalyzing the production of goods and services, com­
plementing the innovational endeavors and technological advance­
ments, opening new business ventures, increasing in domestic
consumption, and making the demographic dividend as an avenue to
invest. Hence, nurturing this labor force is crucial, and the policymakers
need to transform this labor force into human capital by investing in the
education and vocational trainings. Moreover, developing efficient labor
codes might help in mobilizing this labor force, while bringing regula­
tory reforms for protecting their employment and overall well-being.
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.
Data availability
Data will be made available on request.
References
Acquah, H.D., 2010. Comparison of akaike information criterion and bayesian
information criterion in selection of an asymmetric price relationship. J. Dev. Agric.
Econ. 2 (1), 1–6.
Afzal, M., 2006. The impact of globalization on economic growth of Pakistan. Pakistan
Dev. Rev. 46, 723–734.
Ahmad, N., Shahbaz, M., Rehman, I.U., Ali, S., 2019. Impact of oil prices on economic
growth: evidence from Pakistan. Int. J. Energy Econ. Pol. 9 (4), 29–35.
Aizenman, J., Noy, I., 2009. Endogenous financial and trade openness: political economy
considerations. J. Int. Money Finance 28 (5), 824–848.
Ali, S., Munir, Q., 2022. Moderating role of trade openness between export upgrading
and economic growth. Pakistan Journal of Commerce and Social Sciences 16 (4),
530–551.
Arezki, R., Brückner, M., 2011. Oil rents, corruption, and state stability: evidence from
panel data regressions. Eur. Econ. Rev. 55 (7), 955–963.
Badeeb, R.A., Lean, H.H., Smyth, R., 2016. Oil curse and finance–growth nexus in
Malaysia: The role of investment. Energy Econ. 57, 154–165.
Barro, R.J., 1991. Economic growth in a cross-section of countries. Q. J. Econ. 106 (2),
407–443.
Barro, R.J., Sala-i-Martin, X., 1995. Economic Growth. McGraw-Hill, New York, NY.
Barsky, R.B., Kilian, L., 2002. Do we really know that oil caused the Great Stagflation? A
monetary alternative. In: NBER Working Paper No. 9106.
Beck, T., Chen, T.Y., Lin, C., 2018. Finance and growth for microenterprises: evidence
from rural China. J. Financ. Serv. Res. 53 (3), 261–288.
Beck, T., Demirguc-Kunt, A., Honohan, P., 2013. Finance for All? Policies and Pitfalls in
Expanding Access. World Bank, Washington, DC.
Beck, T., Demirguc-Kunt, A., Levine, R., 2000. A new database on financial development
and structure. World Bank Econ. Rev. 14 (3), 597–605.
Bhagwati, J., 2004. In Defense of Globalization. Oxford University Press.
Bierens, H., 1997. Testing the unit root with drift hypothesis against nonlinear trend
stationarity, with an application to the US price level and interest rate. J. Econom.
81, 29–64.
Biermann, F., Kanie, N., Kim, R.E., 2017. Global governance by goal-setting: the novel
approach of the UN Sustainable Development Goals. Curr. Opin. Environ. Sustain.
26-27, 26–31.
A. Imtiaz and S. Javid
Brunnschweiler, C.N., Bulte, E.H., 2008. The resource curse revisited and revised: a tale
of paradoxes and red herrings. J. Environ. Econ. Manag. 55 (3), 248–264.
Chen, W., Alharthi, M., Zhang, J., Khan, I., 2023. The need for energy efficiency and
economic prosperity in a sustainable environment. Gondwana Research 2023/04/01
In Press, Corrected Proof.
Claessens, S., Laeven, L., 2020. Financial development, property rights, and growth.
J. Financ. Intermediation 41, 100850.
Collier, P., Hoeffler, A., 2004. Greed and grievance in civil war. Oxf. Econ. Pap. 56 (4),
563–595.
Corden, W.M., Neary, J.P., 1982. Booming sector and de-industrialisation in a small open
economy. Econ. J. 92 (368), 825–848.
Cuddington, J.T., 1988. Commodity export booms in developing countries. World Dev.
16 (3), 335–345.
Davles, R.B., 1977. Hypothesis testing when a nuisance parameter is present only lander
the alternative. Biometrika 64, 249–254.
Demirguc-Kunt, A., Levine, R., 2008. Finance, financial sector policies, and long-run
growth. In: Policy Research Working Paper No. 4469.
Dickey, D.A., Fuller, W.A., 1981. Likelihood ratio statistics for autoregressive time series
with a unit root. Econometrica 49, 1057–1072.
Dollar, D., Kraay, A., 2004. Trade, growth, and poverty. Econ. J. 114 (493), 22–49.
Dreher, A., 2006. Does globalization affect growth? Evidence from a new index of
globalization. Appl. Econ. 38 (10), 1091–1110.
Enders, W., Lee, J., 2012. A unit root test using a Fourier series to approximate smooth
breaks. Oxf. Bull. Econ. Stat. 74, 574–599.
Engle, R.F., Granger, C.W.J., 1987. Co-integration and error correction: representation,
estimation, and testing. Econometrica 55 (2), 251–276.
Gallant, A.R., 1984. The Fourier flexible form. Am. J. Agric. Econ. 66, 204–208.
Gallant, A.R., Souza, G., 1991. On the asymptotic normality of Fourier flexible form
estimates. J. Econom. 50, 329–353.
Garcia-Herrero, A., Koivu, T., Nagayasu, J., 2013. Can the Financial Development-
Stability Nexus Be Broken? Evidence from Emerging Markets, vol. 19. BOFIT
Discussion Papers.
Görg, H., Greenaway, D., 2004. Much ado about nothing? Do domestic firms really
benefit from foreign direct investment? World Bank Res. Obs. 19 (2), 171–197.
Granger, C.W.J., 1969. Investigating causal relations by econometric models and cross-
spectral methods. Econometrica 37, 424–438.
Gylfason, T., 2001. Natural resources, education, and economic development. Eur. Econ.
Rev. 45 (4–6), 847–859.
Hamilton, J.D., 1983. Oil and the macroeconomy since world war II. J. Polit. Econ. 91
(2), 228–248.
Helpman, E., 2011. Understanding Global Trade. Harvard University Press.
Johansen, S., Juselius, K., 1990. Maximum likelihood estimation and inference on
cointegration– with applications to the demand for money. Oxf. Bull. Econ. Stat. 52
(2), 169–210.
Kakar, Z.K., Khilji, B.A., Khan, M.J., 2011. Globalization and economic growth: evidence
from Pakistan. Acta Universitatis Danubius 3, 208–217.
Khan, I., Zakari, A., Dagar, V., Singh, S., 2022a. World energy trilemma and
transformative energy developments as determinants of economic growth amid
environmental sustainability. Energy Econ. 108, 105884.
Khan, I., Hou, F., Le, H.P., Ali, S.A., 2021. Do natural resources, urbanization, and value-
adding manufacturing affect environmental quality? Evidence from the top ten
manufacturing countries. Resour. Pol. 72, 102109.
Khan, I., Zakari, A., Ahmad, M., Irfan, M., Hou, F., 2022b. Linking energy transitions,
energy consumption, and environmental sustainability in OECD countries.
Gondwana Res. 103, 445–457.
Khan, I., Hou, F., Zakari, A., Tawiah, V., Ali, S.A., 2022c. Energy use and urbanization as
determinants of China’s environmental quality: prospects of the Paris climate
agreement. J. Environ. Plann. Manag. 65 (13), 2363–2386.
Kandil, M., Shahbaz, M., Mahalik, M.K., Nguyen, D.K., 2017. The drivers of economic
growth in China and India: globalization or financial development? Int. J. Dev.
Issues 16 (1).
Khan, I., Hou, F., 2021a. The dynamic links among energy consumption, tourism growth,
and the ecological footprint: the role of environmental quality in 38 IEA countries.
Environ. Sci. Pollut. Control Ser. 28, 5049–5062.
Khan, I., Hou, F., 2021b. The impact of socio-economic and environmental sustainability
on CO2 emissions: a novel framework for thirty IEA countries. Soc. Indicat. Res. 155,
1045–1076.
Kilian, L., 2014. Oil price shocks: causes and consequences. Annual Review of Resource
Economics 6, 133–154.
Kilian, L., Vigfusson, R.J., 2011. Are the responses of the U.S. economy asymmetric in
energy price increases and decreases? Quantitative Economics 2 (3), 419–453.
Kim, D., Perron, P., 2009. Unit root tests allowing for a break in the trend function at an
unknown time under both the null and alternative hypotheses. J. Econom. 148,
1–13.
14
Resources Policy 86 (2023) 104206
Levine, R., 1997. Financial development and economic growth: views and agenda.
J. Econ. Lit. 35 (2), 688–726.
Levine, R., 2005. Finance and growth: theory and evidence. Handb. Econ. Growth 1,
865–934.
Leybourne, S.J., Mills, T.C., Newbold, P., 1998a. Spurious rejections by Dickey-Fuller
tests in the presence of a break under the null. J. Econom. 87, 191–203.
Leybourne, S., Newbold, P., Vougas, D., 1998b. Unit roots and smooth transitions.
J. Time Anal. 19, 83–97.
Liaqat, R., Rehman, M., Shahbaz, M., Nasreen, S., 2022. Impact of oil prices on economic
growth: evidence from Pakistan. Int. J. Energy Econ. Pol. 12 (1), 67–74.
Liu, H., Zafar, M.W., Sinha, A., Khan, I., 2023. The Path to Sustainable Environment: Do
Environmental Taxes and Governance Matter? Sustainable Development. Advance
online publication.
Lütkepohl, H., 2006. New Introduction to Multiple Time Series Analysis. Springer, Berlin
and Heidelberg.
Mankiw, N.G., Romer, D., Weil, D., 1992. A contribution to the empirics of economic
growth. Q. J. Econ. 107 (5), 407–437.
Mork, K.A., 1989. Oil and the macroeconomy when prices go up and down: an extension
of Hamilton’s results. J. Polit. Econ. 97 (6), 740–744.
Narayan, P.K., 2005. The saving and investment nexus for China: evidence from
cointegration tests. Appl. Econ. 37 (17), 1979–1990.
Pesaran, M.H., Shin, Y., 1999. An autoregressive distributed lag modeling approach to
cointegration analysis. In: Strøm, S. (Ed.), Econometrics and Economic Theory in the
20th Century: the Ragnar Frisch Centennial Symposium. Cambridge University
Press, Cambridge.
Pesaran, M.H., Shin, Y., Smith, R., 2001. Bounds testing approaches to the analysis of
level relationships. J. Appl. Econom. 16, 289–326.
Phillips, P.C.B., Perron, P., 1988. Testing for a unit root in time series regression.
Biometrika 75, 335–346.
Qamri, G.M., Sheng, B., Adeel-Farooq, R.M., Alam, G.M., 2022. The criticality of FDI in
Environmental Degradation through financial development and economic growth:
implications for promoting the green sector. Resour. Pol. 78, 10276.
Rajan, R.G., Zingales, L., 1998. Financial dependence and growth. Am. Econ. Rev. 88 (3),
559–586.
Rodrik, D., 1997. Has Globalization Gone Too Far? Institute for International Economics,
Washington, DC.
Rodrik, D., 1998. Why do more open economies have bigger governments? J. Polit. Econ.
106 (5), 997–1032.
Rodrik, D., 2011. The Globalization Paradox: Democracy and the Future of the World
Economy. W. W. Norton & Company.
Ross, M.L., 1999. The political economy of the resource curse. World Polit. 51 (2),
297–322.
Sachs, J.D., Warner, A.M., 1995. Natural Resource Abundance and Economic Growth.
NBER Working Paper No. 5398.
Sbia, R., Shahbaz, M., Helmi, H., 2014. A contribution of foreign direct investment, clean
energy, trade openness, carbon emissions and economic growth to energy demand in
UAE. Econ. Modell. 36, 191–197.
Shahbaz, M., 2012. Does trade openness affect long run growth? Cointegration, causality
and forecast error variance decomposition tests for Pakistan. Econ. Modell. 29,
2325–2339.
Shahbaz, M., Hoang, T.H.V., Mahalik, M.K., Roubaud, D., 2017. Energy consumption,
financial development and economic growth in India: new evidence from a nonlinear
and asymmetric analysis. Energy Econ. 63 (C), 199–212.
Shahbaz, M., Naeem, M., Ahad, M., Tahir, I., 2018. Is natural resource abundance a
stimulus for financial development in the USA? Resour. Pol. 55 (C), 223–232.
Solow, R.M., 1956. A contribution to the theory of economic growth. Q. J. Econ. 70 (1),
65–94.
Stiglitz, J.E., 2002. Globalization and its Discontents. W. W. Norton & Company, New
York, NY.
Stock, J.H., Watson, M.W., 1993. A simple estimator of cointegrating vectors in higher
order integrated system. Economometrica 61, 783–820.
Temple, J., 1999. The new growth evidence. J. Econ. Lit. 37 (1), 112–156.
Valickova, P., Havranek, T., Horvath, R., 2014. Financial development and economic
growth: a meta-analysis. J. Econ. Surv. 29 (3), 506–530.
Yang, X., Khan, I., 2022. Dynamics among economic growth, urbanization, and
environmental sustainability in IEA countries: the role of industry value-added.
Environ. Sci. Pollut. Control Ser. 29, 4116–4127.
Yasmeen, H., Wang, Y., Zameer, H., Solangi, Y.A., 2019. Does Oil Price Volatility
Influence Real Sector Growth? Empirical Evidence from Pakistan. Energy Reports.
Zahoor, Z., Khan, I., Hou, F., 2022. Clean energy investment and financial development
as determinants of environment and sustainable economic growth: evidence from
China. Environ. Sci. Pollut. Control Ser. 29, 16006–16016.
Zakari, A., Khan, I., Alvarado, R., 2023. The impact of environmental technology
innovation and energy credit rebate on carbon emissions: a comparative analysis.
J. Int. Dev. 1–13.