Resources Policy 89 (2024) 104672

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

The criticality of natural resources in financial development: Does

geopolitical risk make any difference?
Ding Qianqian a, Uzma Bashir b, Tan Chunqiao c, *
a
School of Business, Central South University, 410083, Changsha, China
b
Department of Management Sciences, National University of Modern Languages, Rawalpindi, Pakistan
c
School of Business, Nanjing Audit University, 211815, Nanjing, China

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

Keywords: It is a well-established argument that financial development is a primary tool to achieve higher economic growth.
Natural resources Therefore, financial development is mandatory for both developed and developing economies. To improve
Financial development financial development, there is a need to identify its impact factors. Although several impact factors of financial
Geopolitical risk
development are explored in existing literature, natural resources and financial development relationships are
Fourier ARDL
still confusing for policymakers. On top of this, the natural resources-financial development relationship amidst
geopolitical risk is yet to be examined. Hence, we investigate the impact of natural resources on financial
development amidst geopolitical risk for China using an annual time series dataset over the period 1990–2020.
The results claim that economic growth and natural resources improve financial development, while geopolitical
risk lessens financial development. Similarly, the combined impact of natural resources and geopolitical risk
mitigates financial development in China. Hence, we invalidate the financial resource curse hypothesis while
maintaining the level of geopolitical risk constant, whereas we validate the hypothesis if the geopolitical risk is
simultaneously increasing. The findings propose to adopt policies that can promote economic growth and natural
resources. Also, policies should be established to shrink geopolitical risk.

1. Introduction requirements through enhanced loan accessibility. Additionally, vital

When it comes to financial development and economic expansion,
loan availability is considered crucial. Giving financial services to those
who have historically been underserved small and medium-sized en­
terprises in particular should be the main priority in this regard.
Financial development facilitates the economy by allowing people to
invest in enterprises, properties, and education by reducing credit lim­
itations. Better financing accessibility for small and medium-sized en­
ables them to become powerful catalysts for growth that foster
innovation, development, and significant economic benefits to the
country. In summary, opening up more lending options is an essential
strategy for transforming the financial system and promoting sustained
economic expansion. Financial development policies facilitate economic
progress by guaranteeing the accessibility of financial resources.
Furthermore, through providing fair economic opportunities for all
people, particularly those who are marginalized, financial development
combats income inequality in addition to meeting short-term financial
services like loans and bank and savings accounts provide low-income
people more leverage and enable them to deal with financial problems
and volatility in their income. Consequently, this makes it possible for
people to deal with unforeseen circumstances, make plans for the future,
and lessen difficulties hence improving the pace of transactions which
will result in economic growth. In recent decades China has been
considered a prime example of a financial development-growth nexus.
According to the China Statistical Yearbook (2007), over the past three
decades, China has seen both swift economic growth and a sharp in­
crease in financial intermediation. Since the country’s reforms began in
1978 China’s economy has grown at a real annual rate of 9.8%, although
the total amount of loans outstanding in its financial institutions as a
percentage of GDP has soared from 51% to 107%.
A healthy financial system is essential for promoting international
trade, drawing in capital, and guaranteeing the smooth transfer of cash.
Additionally, it is essential for putting strong corporate governance and
risk control mechanisms into place, helping to reduce poverty,

* Corresponding author.
E-mail addresses: qianqianding.csu@outlook.com, qianqianding@csu.edu.cn (D. Qianqian), uzma.bashir@numl.edu.pk (U. Bashir), 849307280@qq.com
(T. Chunqiao).

https://doi.org/10.1016/j.resourpol.2024.104672
Received 17 July 2023; Received in revised form 4 January 2024; Accepted 8 January 2024
Available online 18 January 2024
0301-4207/© 2024 Elsevier Ltd. All rights reserved.
D. Qianqian et al.
improving job prospects, and eventually boosting GDP growth overall.
Given the significance of financial development, there is a need to find
other factors that can increase financial development in this regard
natural resources can play a pivotal role (Shinwari et al. 2022a, 2022b;
Sha, 2023). Natural resources are vital to the expansion of the financial
industry in many ways. Above all, the extraction and utilization of
natural resources significantly boost government revenue, and to export
these raw resources there should be well-established financial channels
to force the authorities to take steps toward financial development. In
addition, natural resources may lead to innovative investment oppor­
tunities and technological advancements that promote the growth of the
financial industry. In recent years, innovation has been prioritized more
and more in order to increase the accessibility of new technologies to
develop financial and economic systems. Utilizing natural resources for
economic gains can stabilize financial sectors. Nevertheless, academic
debates point to a negative impact of natural resources, especially in
resource-rich countries where rent-seeking practices can undermine
vital economic activities like private investment, entrepreneurship, the
labor market, and civil rights (Khan et al., 2020; Shinwari et al., 2023).
The stability and effectiveness of international financial markets are
significantly and multidimensionally impacted by geopolitical threats.
Uncertainty undermines investor confidence and impedes cross-border
capital flows; it can be brought on by geopolitical problems. Geopolit­
ical disputes have the capacity to result in trade disruptions, sanctions,
armed conflicts, and fluctuations in the price of natural resources. There
are geopolitical problems in the country, people frequently flee for their
safety as a result of these concerns, which affect the value of assets and
impede the financial sector’s overall expansion. Geopolitical threats
may also spur changes to laws and regulations that further limit finan­
cial transactions. Rich natural resources also encourage financial growth
by increasing export revenue, stimulating the economy, and attracting
capital. Geopolitical risks decrease government income, and a weak­
ening currency might pose a danger to the long-term stability of the
global financial system. Moreover, the ambiguity generated by geopo­
litical uncertainties has the potential to discourage foreign investment,
impeding efforts to bolster the growth of resilient financial markets.
This research uses an annual time series dataset spanning 1990–2020
to investigate geopolitical risk, natural resource rent, and their inter­
active terms influencing financial development. China was the only
nation selected for this investigation. China’s importance as a consumer
and influencer in the world’s resource markets makes it imperative to
concentrate on the country. Given its reliance on natural resources,
China is particularly vulnerable to geopolitical risks related to the Belt
and Road Initiative, which might impact its financial markets and eco­
nomic stability. Global markets, commodities pricing, and sustainability
are all affected by China, which offers more information than just its
economic resiliency. Secondly, previous research ignores the critical
role that GPR plays in the relationship between natural resources and
financial development. Third, in this research, we utilize the new
Fourier augmented ARDL (FAARDL) methodology. In two areas, the
FAARDL methodology excels above other modern techniques: 1) It takes
into consideration various structural breakdowns of different kinds; 2) It
uses three tests to examine the cointegration between certain variables
(more information in the methodology section). Consequently, the
FAARDL model produces reliable results. Regarding the significance of
this study, it is worth mentioning that this study provides valuable in­
sights for policymakers and researchers by shedding light on the intri­
cate relationship between these variables. Unlike previous research, the
study specifically examines the interactive term of geopolitical risk and
natural resource rent, which has received limited attention in the liter­
ature. Through this examination, the study illuminates how the inter­
play of political and economic factors shapes the financial development
landscape in China. The findings of this study offer practical recom­
mendations for fostering economic growth and stability while address­
ing the unique challenges and opportunities that China faces in its
pursuit of financial development.
2
Resources Policy 89 (2024) 104672
2. Literature review
Development is a comprehensive concept that is multifaceted and
complex in its very nature. Financial development is a vital indicator of
the overall economic development of a given geographical proximity. To
comprehend the sphere of influence of this significant indicator, many
pieces of research have been conducted so far. Researchers have tried to
establish a long/short-run relationship between financial development
and several other socioeconomic indicators. Some of the most relevant
works have been presented. Financial development became the talk of
the town in the latter half of the 20th century. After the recognition of
the “development” paradigm in the aftermath of World War 2, financial
development became an important split. During the 1990s era, re­
searchers tried to grasp the concept of financial development in a rapidly
changing world order. During that time, financial development and
economic growth were studied in a single frame. According to De Gre­
gorio and Guidotti (1995) financial development and economic growth
are positively linked, however, efficient use of investment has a key role
in it. This thought was dominating in the early years of the 21st century
with the mirror angle. Calderón and Liu (2003) mentioned that financial
development also has a positive impact on economic growth. The
research extends further to say that this effect can be seen more prom­
inently in the long run. Another important postulate of the research says
that this relationship between financial development and economic
growth is more visible in developing countries as compared to devel­
oped countries.
Encouraging economic stability and growth through effective capital
allocation requires the development of the financial sector. Prosperity
and poverty are reduced when there is a strong financial system that
supports investment, entrepreneurship, and financial inclusion. A strong
financial sector serves as a pillar for general economic growth by
improving access to financial services and transparency. That’s why
there is a need to develop the financial sector. Financial development
has also been linked with several other factors. Financial openness, for
example, is an important entity that affects financial development. The
former has a positive impact on the latter (Chinn and Ito, 2006). The
aforementioned study used a panel of 108 countries and the period
between 1980 and 2000. Their study found that financial openness es­
calates equity market development, a vital measure of financial devel­
opment. In a separate study, Ito (2006) also validates the same results.
The research brings another crucial indicator into the limelight which is
legal development. It is provided that financial openness can be trans­
formed into equity market development only in the presence of legal
development as an important moderator. Besides financial openness,
capital accounts also go hand in hand with financial development.
Especially in the presence of trade openness, the capital account is
significantly linked with financial development. Law (2008) demon­
strated that capital account and trade openness are positive contributors
to financial development. In the meantime, the impact of financial
development has also been explored in the context of several emerging
concepts. The case of environmental degradation is worth noting here.
Tamazian et al. (2009) point out that financial development has a pos­
itive contribution to reducing environmental degradation. Their
research shows that liberalization and openness of the financial side
enable more investment in R&D projects through FDI directed at curbing
environmental degradation. Finally, government institutions were also
studied in connection with financial development in a similar time
frame. Herger et al. (2008) made an important contribution in this re­
gard. The research provided that government institutions may bring
financial development in the presence of a few conditions. That is, the
institutions must be functioning in such a way that they impede the
political elite of a country from taking over the financiers. The same
research also settled an important concern by mentioning that cultural
beliefs have no significant relationship with financial development.
Another major variable that is brought forward in this research is the
natural resources. The link between natural resources and financial
D. Qianqian et al.
development has long been investigated and the opinions in the aca­
demic sector are varied. For instance, Yıldırım et al. (2020) found that
by exploiting resources from nature, financial development can be
achieved in the long run. Their research proposes that natural resources
(oil revenue in particular) have a positive and significant impact on
financial development in the long run, however, this is not the case in
the short run. Similar results have been demonstrated by research con­
ducted from a Pakistani perspective by Atil et al. (2020), they demon­
strate that natural resources (more specifically oil prices) have a positive
impact on financial development. The research also provides that
financial development is also positively linked with economic growth.
Similarly, Law and Moradbeigi (2017) recently looked at the
resources-finance-growth nexus for 63 oil-producing nations during the
1980–2010 timeframe. Their empirical findings show that by directing
oil revenues toward profitable investment projects, financial develop­
ment mitigates the detrimental impact of natural resources on economic
growth. M. A. Khan et al. (2020) claim that by undermining finance,
natural resources play a negative role in financial development. In that
sense, the study validates the hypothesis of the natural resources curse.
The hypothesis has also been validated by Tang et al. (2022) in the
context of ASEAN countries, Guan et al. (2020) in the case of China and
Asif et al. (2020) in the case of Pakistan, witnessed variations across time
and region. For example, Zameer et al. (2020) proposed that natural
resources and financial development may have positive or negative links
depending on the region as well as the efficiency with which the re­
sources are utilized.
The third core variable under discussion in this study is geopolitical
risk. The relationship between geopolitical risk and financial develop­
ment got gigantic attention during the past decade. The relationship has
been seen from the perspective of several geopolitical phenomena. The
concept of geopolitical risk is wide and complex. Geopolitical risk is
considered one of the most intense forms of corporate risk. Volatile
political regions and uncertainties in political domains give birth to
geopolitical risks. Several forms of risks are attached to financial
development. Naqvi et al. (2017) measured the impact of political
instability on financial development of Pakistan. Their results clearly
show that political instability has a negative impact on financial
development of Pakistan. Apart from that unstable and non-functional
political institutions also pave the way for geopolitical risk at large.
An improvement in political institutions may lead to financial devel­
opment. Huang (2010) expressed that an improvement in a political
institution may directly and positively impact financial development.
More specifically, democratic transformation sets a path for financial
development in a region. The dataset of 90 countries was taken from
1960 to 1999. The research, however, emphasizes that the results are
more predictable and credible in the short run. Girma and Shortland
(2008) highlighted the role of the overall political economy when it
comes to the development of financial systems. The panel data from
1975 to 2000 was used in this research. The data was also comprehen­
sive in the sense that it covered both developed and developing coun­
tries. Their study reveals that in a country where the elite (minority)
holds an authoritarian regime, financial development becomes a myth.
In contrast to this, a stable and democratic regime is suitable for the
financial system to flourish. Political liberty is considered a good omen
for financial systems to grow. Political liberalization, especially in
combination with economic liberalization, may impede the growth of
financial systems. In a groundbreaking study, Enowbi-Batuo and
Kupukile (2010) focused on the topic of political liberalization and po­
litical stability. Their research concluded that democratic reforms and
political stability are part and parcel of financial development. In
addition to this, reforms in the political domain may also result in
improvement in financial systems. Zhou et al. (2020) conducted
research in the context of emerging economies. This can be considered
the most comprehensive research on the impact of geopolitical risk on
financial development. As compared to developed economies, emerging
and developing economies tend to exhibit more geopolitical risk factors
3
Resources Policy 89 (2024) 104672
and volatile political environments. Their research shows that geopo­
litical risk has a negative impact on financial development. The private
sector’s domestic credit is negatively associated with increased geopo­
litical risk. This could be taken as the most relevant research in the
domain of geopolitical risk and financial development. There are very
few works that establish the relationship between the umbrella of
geopolitical risk and financial development. This could be considered a
significant research gap.
The above-mentioned works relate mainly to three distinctive vari­
ables with financial development, i.e., economic growth, natural re­
sources, and geopolitical risk. It can therefore be deduced that these
three variables have a significant relationship with the development of
financial systems. Furthermore, it can also be concluded that these three
independent variables also work vibrantly in the presence of each other.
For example, a combination of natural resources and geopolitical risk
may have unique outcomes for financial development. In this regard, it
is vital to take a look at the works that incorporate more than one of
these three variables simultaneously. Zaidi et al. (2019) deep-dived into
the matter and explored various dimensions of financial development.
By using a causality analysis, their study validates financial develop­
ment and the feedback effect of globalization, gross fixed capital, and
economic growth. Dong et al. (2023) also explored the topic from
multiple angles. The study used the CS-ARDL model. The research used
panel data from 2000 to 2020 in the context of BRICS countries. The
study shows that renewable energy investment and geopolitical risk
have deep-rooted ties with financial development. This complex inter­
play has unprecedented results that introduced a new paradigm in the
field. One of the most relevant studies in this regard has been conducted
by Wang et al. (2023). Their study employed an econometric approach
of time series. The data from 1992 to 2022 has been considered.
Financial inclusion is taken as a measure of financial development in
China. Their findings prove that natural gas and coal rent enhances
financial inclusion in China. The mineral rent, on the other hand, has the
opposite impact. Similarly, trade boosts financial inclusion while
geopolitical risk decreases it.
It is evident from the review of the literature that natural resources,
economic growth, and geopolitical risk are closely connected with
financial development, in one way or the other. There are, however,
some crucial points to be noted in this regard. Firstly, the impact of these
variables varies across time and space. Secondly, different data sets and
data analysis methods provide different results. Finally, it is worth
noting that these three independent variables work differently when
placed in combination with each other. The present study is unprece­
dented in a way that it places natural resources, economic growth, and
geopolitical risk in a common place to investigate their implications for
financial development. On top of this, the current study explores the
combined impact (i.e., interaction effect) of natural resources and
geopolitical risk on financial development.
3. Theoretical framework
Financial stability and development can be facilitated by the sus­
tainable use of natural resources and their appropriate management.
The benefits of natural resources on financial development are more
likely to be realized by governments that adopt good resource gover­
nance policies, such as open and transparent regulatory frameworks, fair
income distribution, and environmental sustainability initiatives.
Countries may cultivate a more robust and diverse economy, creating
the groundwork for long-term financial development and raised living
standards, by avoiding resource mismanagement. Furthermore, nations
possessing plentiful and strategically significant resources, such as
minerals, oil, or fertile land, frequently see economic expansion as a
result of these resources serving as major sources of export income
(Shinwari et al., 2022a). Resource exports may bring in a large number
of foreign currencies support economic growth generally and provide
governments the money they need to spend on infrastructure,
D. Qianqian et al. Resources Policy 89 (2024) 104672

healthcare, and education but for all that, there is a need for developed
financial institutions, so natural resources can enforce the authorities to
develop financial sectors on priority basis for the betterment of the so­
ciety. In conclusion, even though natural resources can be a huge asset
for financial development, how they are managed and governed plays a
crucial role in determining the beneficial or harmful effects. Figure-1
below shows how over-dependence on natural resources can hinder
financial development. Besides, Fig. 2 illustrates the convoluted rela­
tionship between geopolitical risk and financial development.
Financial development is significantly impacted by geopolitical
concerns, which establish a complex relationship between politics and
economics. Conflicts, trade disputes, and political unrest increase un­
certainty, which discourages foreign investment and impedes economic
expansion. Financial markets are shook by geopolitical shocks, which
increase volatility and erode investor confidence. Long-term economic Figure-2. Geopolitical risk and financial development linkage.
progress may be hampered by this disturbance, which may impair the
smooth operation of financial institutions, block capital flows, and limit the impact of natural resources (NRR) and geopolitical risk (GPR), and
access to finance. In light of this, understanding how geopolitical risk economic growth (EG) on financial development. The financial devel­
and financial development interact underscores the critical need for opment model without the interactive term of NRR*GDP (equation-1)
stability and efficient risk management techniques in order to promote and with the interactive term (equation-2), adopts the following func­
long-term economic growth and draw in investments in our increasingly tional form:
linked global community (Ma et al., 2021). The complex interplay be­
FD = f (EG, NRR, GPR) (1)
tween natural resources and geopolitical risk is a major factor in
financial development. Geopolitical risk refers to the unpredictability
FD = f (EG, NRR, GPR, NRR ∗ GPR) (2)
results from political unrest, wars, and shifts in governmental policies,
all of which have a significant impact on a country’s economy. On the In the proposed framework, financial development is denoted as FD,
other hand, the revenue obtained from the extraction and export of with credit to the domestic private sector serving as a proxy variable for
precious resources such as minerals, oil, and gas is known as natural FD (Ganda, 2019; Alshubiri et al., 2020; Younsi and Bechtini, 2020;
resource rent. Financial progress is greatly impacted by the complex Ofori et al., 2023); economic growth is represented as EG, for which per
dynamic that is created by the relationship between GPR and NRR. capita GDP is taken as proxy variable (Asafu-Adjaye et al., 2016; Razzaq
Increased geopolitical risk makes things more unpredictable, which et al., 2023; Balcilar et al., 2023); GPR represents geopolitical risk and
lowers investor confidence and discourages foreign direct investment. for this factor, GPR index developed by Caldara and Iacoviello (2022) is
As a result, companies find it difficult to obtain financing, and the utilized; NRR is natural resource rent and its proxy is total NRR as share
expansion of the financial markets stagnates (Liang et al., 2023). of GDP (Do, 2021; Xu et al., 2022); and NRR*GPR is interactive term of
Furthermore, geopolitical risk upsets the dynamics of natural resource natural resource rent and geopolitical risk. The data for variables is
supply and demand, causing price volatility that jeopardizes the stability taken from World Development Indicators (WDI) published by World
of economies reliant on these resources. It’s interesting to note that the Bank (2022). Based on data from the WDI, China’s economy has wit­
exploitation of natural resources and the resulting rent might exacerbate nessed a remarkable surge in domestic credit to the private sector,
geopolitical unrest. Conflicts are exacerbated by rival territorial claims reaching 86.2 percent of GDP in 1990 and 178.1 percent in 2021. The
or disagreements over income sharing, which further destabilizes po­ econometric representation of the model without interactive term of
litical environments and impedes financial progress (Zhang et al., 2023). NRR*GDP (equation-3) and with interactive term (equation-4) are
outlined below:
4. Data and methodology
FDt = f (α + β1 EGt + β2 NRRt + β3 GPRt + εt ) (3)
4.1. Model and data
FDt = f (α + β1 EGt + β2 NRRt + β3 GPRt + β4 NRR ∗ GPRt + εt ) (4)

The current study, taking into account the previously mentioned In the model equation, α represents the constant term, while β1 , β2 ,
theoretical framework, and presents a unique paradigm for examining β3 , and β4 correspond to the coefficients of the explanatory variables.
The error term is denoted as εt , and t represents the time period spanning
from 1990 to 2020.

Table-1
Variable Descriptions.
Codes Variable Proxy Measurement Unit Source

FD Financial Credit to Percentage of GDP World Bank

Development Domestic
Private Sector
EG Economic GDP Per US Dollar constant World Bank
Growth Capita 2015
NRR Natural Total Natural Percentage of GDP World Bank
Resource Rent Resource
Rents
GPR Geopolitical Geopolitical Number adverse Caldara and
Risk Risk Index geopolitical events of Iacoviello
Individuals based on (2022)
tally of newspapers
Figure-1. Financial development and natural resource abundance.

4
D. Qianqian et al. Resources Policy 89 (2024) 104672

4.2. IV.II Fourier ARDL technique model. To address this limitation, the current study incorporates the
Fourier approximation within the ARDL method, which allows for valid
Analyzing the stationarity of the variables is the first stage in the and significant inferences. The Fourier ARDL method is particularly
process. Next, cointegration is examined using the relevant methodol­ adept at handling both sharp and smooth breaks, as demonstrated by
ogies. In particular, the ARDL bounds testing suggested by Pesaran et al. Gallant and Souza (1991). Importantly, the Fourier approximation does
(2001) is the most appropriate approach when the variables in the not require any additional prior information regarding the frequency,
model show a combination of stationary levels and first differences. time/date, or nature of the structural breaks. Moreover, unlike using
Additionally, Narayan (2004) has also supported the applicability of the structural break dummies that require multiple parameters, the Fourier
ARDL approach for variables with different orders of integration. To approximation offers improved power and good size properties (Enders
estimate the following model, we employ the ARDL specification and Lee, 2012).
(equation-5). In order to address the issue of structural breaks, as identified and
y p q acknowledged by the researchers, the present study employs the Fourier
∑ ∑ ∑
ΔFDt = α+ φi ΔFDt− i + βi ΔEGt− i + γ i ΔNRRt− i
ARDL method, which is the Fourier approximation of the Autoregressive
i=1 i=0 i=0 Distributed Lag (ARDL) approach. This method is utilized to examine the
∑
m
impact of GDP growth, NRR, GPR, and the interactive term of NRR*GPR
+ ωi ΔGPRt− i + +π1 FDt− 1 + π2 EGt− 1 + π3 NRRt− 1 + π4 GPRt−
i=0
1
on financial development in China. For estimation purposes, equation-7
and 8, the Fourier ARDL equation, is utilized in the study.
+ vt
(5)

y
∑ p
∑ q
∑ ∑
m
ΔFDt = α+ φi ΔFDt− i + γi ΔEGt− i + γ i ΔNRRt− i + ωi ΔGPRt− i + π 1 FDt− 1 + π2 EGt− 1 + π3 NRRt− 1 + π4 GPRt− 1
i=1 i=0 i=0 i=0
( ) ( )
2π kt 2π kt
+ μ1 sin + μ2 cos + vt (7)
T T

In addition, the study looked at how the interaction term between NRR The Fourier ARDL approach, incorporating the interaction term of
and GPR (NRR*GPR), relates to financial development. Equation-6 NRR*GPR, takes the following form:
presents the ARDL version of this interaction term.

y
∑ p
∑ q
∑ ∑
m ∑
n
ΔFDt = α+ φi ΔFDt− i + γ i ΔEGt− i + γi ΔNRRt− i + ωi ΔGPRt− i + δi ΔNRR ∗ GPRt− i + π1 FDt− 1 + π2 EGt− 1 + π3 NRRt− 1 + π4 GPRt− 1
i=1 i=0 i=0 i=0 i=0
( ) ( )
2πkt 2πkt
+ π 5 NRR ∗ GPRt− 1 + μ1 sin + μ2 cos + vt (8)
T T

In equation-3, the Fourier ARDL approach represents the amplitude

y
∑ p
∑ q
∑ and displacement of the frequency component with μ1 and μ2. The
ΔFDt = α+ φi ΔFDt− i + βi ΔEGt− i + γ i ΔNRRt− i Fourier frequency is denoted as ‘k’, and the value of π is 3.14. The sample
size is represented as ‘T’, and the trend is denoted as ‘t’. For a more
i=1 i=0 i=0
∑
m ∑
n
+ ωi ΔGPRt− i + δi ΔNRR ∗ GPRt− i + π1 FDt− 1 + π2 EGt− 1
comprehensive understanding of the Fourier ARDL method, readers can
i=0 i=0 refer to the research studies conducted by Kirikkaleli et al. (2023) and
+ π 3 NRRt− 1 + π4 GPRt− 1 + π 5 NRR ∗ GPRt− 1 + vt (6) Liu et al. (2022), which provide detailed explanations. Table 1 unveils a
brief overview of the variables considered for the research.
In equation-5, the constant term is denoted as “α”, while the coefficient
symbols of the independent variables in the short run are represented as 5. Results and discussion
“φ_i, β_i, γ_i, ω_i and δ_i”. In the latter part of the equation, the long run
coefficients are indicated by the symbol “π_i” where i takes values from 1 This part of the study is devoted to the empirical outcomes. Initially,
to 5. Moreover, the lag order of the variables is denoted by y, p, q, m, and we display the descriptive statistics. Thereafter, we test the unit root
n. Additionally, the error term is represented as “vt”. However, the property. Next step is about testing for the cointegration. Finally, we
ARDL approach does not account for structural breaks, and Enders and estimate the long-run and short-run elasticity.
Lee (2012) argue that this omission leads to weak inferences in the

5
D. Qianqian et al. Resources Policy 89 (2024) 104672

Table-2 Table-5
Descriptive statistics. Results from FARDL model (without interaction term).
EG NRR GPR FD Variable Coefficient p-value

Mean 8.13 1.09 0.81 4.60 Long-run findings

Std. Dev. 0.80 0.66 2.61 0.85 EG 0.20** 0.03
Skewness − 0.12 − 0.05 − 1.51 − 4.91 NRR 0.11** 0.02
Kurtosis 1.71 1.84 2.91 27.16 GPR − 0.11** 0.03
J.B. test (0.30) (0.39) (0.09)* (0.00)***

Note: Jarque-bera test (J.B. test), Standard deviation (Std. Dev.), *, **, *** Short-run findings
denote p < 0.01, p < 0.05, p < 0.1. EG 0.18** 0.08
NRR 0.11** 0.06
GPR − 0.06*** 0.00

Table-3
Unit root analysis. Fourier Terms
F1 − 1.030 0.13
Indicator I(0) I(1)
F2 1.13 0.11
EG 0.00** [2007] – Diagnostics
FD 0.31 [1998] 0.00*** [2009] ECT − 0.21*** 0.00
NRR 0.01** [2005] – ADJ. R2 0.78
GPR 0.01** [2008] – LM test 0.12
ARCH test 0.26
Note: [.] reports the break date. *p < 0.10 **p < 0.05 ***p < 0.01. CUSUM test Stable
CUSUM of square test Stable
5.1. Preliminary analysis Note: *p < 0.10 **p < 0.05 ***p < 0.01.

We report the descriptive statistics in Table-2. As can be observed

economic growth (EG) has the highest mean whilst geopolitical risk Table-6
(GPR) has the lowest mean value. In addition, geopolitical risk has the Results from FARDL Model (with interaction term).
highest variation. The entire dataset is negatively skewed, as shown by Variable Coefficient p-value
the skewness value. Financial development has the thickest tails
Long-run findings
whereas economic growth has the narrowest tails. J.B. test claims that EG 0.12** 0.04
geopolitical risk and financial development have a non-normal distri­ NRR 0.07** 0.03
bution while economic growth and natural resource rent (NRR) have a GPR − 0.13* 0.09
normal distribution. NRR*GPR − 0.04** 0.02

5.2. Unit root analysis Short-run findings

EG 0.13** 0.07
NRR 0.16** 0.02
This sub-section revolves around unit root testing. To opt for the GPR − 0.01*** 0.00
appropriate econometric approach to discern cointegration, it is NRR*GPR − 0.02* 0.06
mandatory to test for the unit root property of the entire dataset (Bal­
salobre-Lorente et al., 2023a, b, c, Doğan et al., 2022; Sinha et al., 2022, Fourier Terms
Esmaeili et al., 2023). Generally, ADF and PP tests are being utilized to F1 − 1.29 0.16
examine unit roots. However, these aforementioned tests cannot counter F2 1.42 0.23
structural break, thereby leading to unreliable results. Hence, we apply
the Zivot and Andrew (1992) unit root test, which can detect a structural Diagnostics
break. The null hypothesis of this test claims that there is a unit root ECT − 0.23*** 0.00
ADJ. R2 0.73
whilst the alternative hypothesis proposes vice versa. Table-3 reports the LM test 0.15
results from the unit root test. ARCH test 0.20
The findings from Table-3 reveal that the null hypothesis for eco­ CUSUM test Stable
nomic growth, NRR, and GPR could be rejected at level (i.e. I(0)), CUSUM of square test Stable
revealing that these data series are integrated at level. On the contrary, Note: *p < 0.10 **p < 0.05 ***p < 0.01.
financial development is integrated at the first difference (i.e. I(1)), since
we can reject the null hypothesis at I(1). In addition to this, structural Unlike contemporary co-integration tests, we apply the FARDL bounds
breaks have mostly been observed during the financial crisis period. test. This test is applicable if the variable follows a mixed order of
Since the entire dataset is integrated at I(0) or I(1), we can adopt the integration. Also, this test handles multiple breaks. Thus, the merits of
FARDL approach to estimate the long- and short-run elasticity. the FARDL bounds test motivate us to use this aforementioned method.
The outcomes from the test are displayed in Table-4.
6. Cointegration analysis The null hypothesis of the ARDL bounds test claims that no co-
integration exists while the alternate hypothesis claims vice versa. To
It is imperative to investigate whether the selected variables show reject the null hypothesis, the calculated values from the F-test and t-test
any long-run co-movement. To that end, we use a cointegration test. must be higher than the upper bound values. As can be observed from
Table-4, the calculated values of both tests are higher than those of
Table-4 upper bound values, indicating that cointegration exists in this case.
Cointegration analysis. Hence, we report a long-run co-movement between the considered
Test Calculated value Lower bound Upper bond variables.
F-test 7.41 4.29 5.61
t-test − 5.34 − 3.43 − 4.37

6
D. Qianqian et al.
6.1. The long-run and short-run estimates
We estimate the FARDL model to get the long and short-term esti­
mates. The findings from equation-7 and 8 are reported in Table-5 and 6,
respectively. To investigate the combined effect of NRR and GPR (i.e.
NRR*GPR), we estimate the FARDL model using equation-8. Table-5 and
6 present statistical significance for all the long-run and short-run co­
efficients, EG, NRR, GPR, and NRR*GPR. This suggests that in the short
and long terms, EG, NRR, GPR, and NRR*GPR have an impact on
financial development. More specifically, in the long run, Table-5 in­
dicates that a 1% increase in economic growth is correlated with a
0.20% increase in financial development, but Table-6 indicates that a
1% increase in economic growth is linked to a 0.12% increase in
financial development. In the short run, Table-5 indicates that a 1% rise
in economic growth causes a 0.18% increase in financial development,
and Table-6 indicates that a 1% increase in economic growth is associ­
ated with a roughly 0.13% increase in financial development. The re­
sults show that, in both the short and long terms, financial development
(FD) and economic growth (EG) are positively correlated. A sophisti­
cated financial system is needed to control and manage the growing
economy as economic growth increases. The fact that more economic
activity requires a stronger financial infrastructure to manage increased
savings, investment, and overall economic transactions is the basis for
this link. This study is in line with the viewpoint put forth by Bumann
et al. (2013) who most likely explore how economic growth contributes
to financial development and highlight the critical role that a functional
financial system plays in both promoting and maintaining economic
growth. In the long term, Table-5 shows that a 1% increase in NRR
causes financial development to rise by 0.11%, whereas Table-6 shows
that a 1% increase in NRR causes financial development to rise by
0.07%. On the other hand, the short-run estimates show that in Table 5,
a 1% rise in NRR increases financial development by 0.11%, whereas in
Table-6, a 1% increase in NRR accounts for 0.16% of the increase in
financial development. The results of the study refute the widely held
belief in the “curse of the natural resources” and show that, on the
contrary, natural resource rent promotes financial development. There
are several reasons for the positive link that has been identified between
natural resources and financial development. First off, natural resource
increases government income and supplies the funds needed to build a
strong financial system. Effective fund management necessitates the
establishment of a sophisticated financial infrastructure as strong fi­
nances attract capital flows and foreign direct investment. Likewise, the
presence of natural assets would motivate nations to broaden their
economy and lessen the risks involved with an excessive dependence on
one industry. To efficiently handle and maintain a diverse economy,
countries may decide to give priority to the advancement of their
banking structures. The results of Z. Khan et al. (2020) support these
inferences. Regarding geopolitical risk, Table-5 and 6 demonstrate that a
one percentage point increase in geopolitical risk causes a 0.11 percent
and 0.13% long-term decline in financial development, respectively.
However, Table-5 demonstrates that there is a 0.06% short-term
reduction in financial development for every 1% increase in geopolit­
ical risk. Table-6 shows that for every 1% increase in geopolitical risk,
there is a 0.01% short-term drop in financial development. A thorough
analysis based on several theoretical frameworks demonstrates the
intricate relationship between financial progress and geopolitical risk.
Firstly, it has established that investment in the economy is discouraged
by geopolitical risk, which is detrimental to the financial sector as a
whole. Secondly, people tend to get loans less and spend less when
geopolitical risk is rising. Lastly, in situations when geopolitical risk is
elevated, those in authority may choose that addressing geopolitical
concerns matters before improving the financial system. These outcomes
align with the study conducted by Lu et al. (2020). Our assessment in­
dicates that the joint influence of Natural Resource Rent and Geopolit­
ical Risk might seriously hinder Financial Development. Table-6
illustrates that in the long run for each one percentage point rise in
7
Resources Policy 89 (2024) 104672
GPR*NRR financial development rise by 0.04%. In short-term, financial
development decreases by 0.02% for every 1% increase in NRR*GPR.
The resource curse which results in institutions that are weak and eco­
nomic issues, usually affects nations that depend heavily on natural
resources. High geopolitical risks, on the other hand, prevent foreign
investment and lead to flight of capital, both of which impede the
development of a robust financial industry. These issues are made worse
by the interaction among GPR and NRR, which inhibits the growth of the
financial system and reduces economic variety. In order to determine
whether the estimated model had any econometric issues, we then ran a
variety of diagnostic tests. According to the results of diagnostic testing,
the model is not experiencing issues with serial correlation,
non-constant variance of errors, instability, or other issues. Hence, we
could explain that the estimates model is a good fit.
7. Conclusion and policy recommendations
The prevalent discourse asserts that financial development (FD) is
crucial for promoting Economic Growth (EG) in both rich and devel­
oping nations. Determining the variables affecting FD’s influence is
essential to strengthening it. Despite the literature’s exploration of a
variety of factors, policymakers continue to find the link between Nat­
ural Resource Resources (NRR) and Financial Development (FD)
confusing, particularly when considering Global Political Risks (GPR).
This study attempts to explore the impact of natural resources on
financial development in the context of geopolitical risk Using China as a
case study and data from 1990 to 2020, Zivot and Andrew (1992) unit
root test, Autoregressive Distributed Lag (ARDL) bounds test, the Fourier
ARDL (FARDL) model are all used in the study. The unit root test reveals
that none of the variables are integrated at I(2). Similarly, the ARDL
bounds test indicates a long-run co-movement among the variables. The
FARDL model asserts that economic growth positively affects financial
development in both the long run and the short run. Furthermore,
throughout both time spans, natural resources support increased
financial development. On the other hand, both in the short and long
terms, geopolitical risk has a negative influence on financial develop­
ment. While the short-term and long-term financial development is
negatively impacted by the combined effect of natural resource rent and
geopolitical risk.
Our findings demonstrate how important it is to simultaneously
lower geopolitical risks and enhance natural resource management to
support financial expansion and economic development. Authorities
ought to utilize a dual strategy to improve financial development by
reducing the harmful impact of natural resources and geopolitical risk.
The highest priority has to be placed on the responsible handling of
resources. To guarantee ethical extraction, controlled depletion of re­
sources, and minimize environmental harm, strict laws and monitoring
systems are required. For all of these, it is also essential to establish
transparent frameworks for revenue management. Likewise, by
reducing its dependence on limited resources, economic diversification
may increase the country’s resilience to changes in the global pricing of
resources. In order to increase financial development, geopolitical risks
must be reduced. Policymakers must take the initiative to promote
global collaboration and peacefully settle geopolitical conflicts.
Reducing reliance on politically unstable areas and improved economic
stability can be achieved by establishing a diverse range of trading
partners and economic partnerships. Enhancing laws and regulations,
strengthening the financial sector, and boosting investor confidence are
essential elements of this strategy. Long-term financial success and sta­
bility may be achieved through an integrated strategy that includes
sustainable resource management, diplomatic responses to geopolitical
issues, and moral financial practices.
CRediT authorship contribution statement
Ding Qianqian: Conceptualization, Data curation, Formal analysis,
D. Qianqian et al.
Methodology, Writing – original draft. Uzma Bashir: Conceptualiza­
tion, Data curation, Methodology, Software, Visualization, Writing –
review & editing. Tan Chunqiao: Investigation, Project administration,
Resources, Supervision, Validation, Writing – review & editing.
Declaration of competing interest
There’s no financial/personal interest or belief that could affect their
objectivity.
Data availability
Data will be made available on request.
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