Journal of Natural Environment

Investigating the asymmetric relationship between financial development and natural resources in the Iranian economy

Document Type : Research Paper

Authors

1 Department of Economics, Faculty of Literature and Humanities, Ilam University, Ilam, Iran

2 Department of Economics, Faculty of Literature and Humanities, Urmia University , Urmia, Iran

Abstract

In order to promote the economic activities of a country, it needs a productive and healthy financial structure and financial development as the backbone of the country's economic development. The debate over the impact of natural resources and their impact on financial development has been an important area of ​​research over the past few decades. The present study examines the asymmetric relationship between financial development and natural resources by combining the variables of real GDP, capital, education, globalization and natural resources using annual data from 1979 to 2018.  In addition to the standard unit root test, this study uses a single root test with several structural failures. The Maki co-integration method is also used to determine the long-run relationship of up to 5 structural breaks. In addition, self-explanatory co-integration with wide nonlinear intervals is applied to determine the long-term asymmetric relationship between variables. Long-term results show the confirmation of the positive effect of natural resources with coefficients of 0.175 and 0.611 on financial development in long-term positive and negative shocks. In addition, education with a coefficient of 6.983 has a positive and significant effect on financial development in the long run, while GDP has a significant negative impact on financial development in the long run. Also, the existence of an asymmetric long-term and short-term relationship between natural resources and financial development has been confirmed. This shows that significant investment in the banking sector for Iran can affect the natural resources sector.

Keywords

Bartlett, M.S., 1950. Tests of significance in factor analysis. British Journal of Statistical Psychology 3(2), 77-85.
Bayer, C., Hanck, C., 2013. Combining non‐cointegration tests. Journal of Time Series Analysis 34(1), 83-95.‏
Carrion-i-Silvestre, J.L., Kim, D., Perron, P., 2009. GLS-based unit root tests with multiple structural breaks under both the null and the alternative hypotheses. Econometric Theory 25(6), 1754-1792.‏
Chaudhry, I. S., Faheem, M., Farooq, F., Ali, S., 2021. Financial Development and Natural Resources Dynamics in Saudi Arabia: Visiting ‘Resource Curse Hypothesis’ by NARDL and Wavelet-Based Quantile-on-Quantile Approach. Review of Economics and Development Studies 7(1), 101-117.‏
Clemente, J., Montañés, A., Reyes, M., 1998. Testing for a unit root in variables with a double change in the mean. Economics Letters 59(2), 175-182.‏
Faisal, F., Tursoy, T., Berk, N., 2018. Linear and non-linear impact of Internet usage and financial deepening on electricity consumption for Turkey: empirical evidence from asymmetric causality. Environmental Science and Pollution Research 25(12), 11536-11555.‏
Feenstra, R.C., Inklaar, R., Timmer, M.P., 2015. The next generation of the Penn World Table. American Economic Review 105(10), 3150-82.‏
Ghirmay, T., 2004. Financial development and economic growth in Sub‐Saharan African countries: evidence from time series analysis. African Development Review 16(3), 415- 432.
Gokmenoglu, K.K., Rustamov, B., 2019. Examining the World Bank Group lending and natural resource abundance induced financial development in KART countries. Resources Policy 63, 101433.‏
Han, J., Raghutla, C., Chittedi, K.R., Tan, Z., Koondhar, M.A., 2022. How natural resources affect financial development development? Fresh evidence from top-10 natural resouce abundant countries. Resources Policy 76, 102647.
Han, J.S., Lee, J.W., 2020. Demographic change, human capital, and economic growth in Korea. Japan and the World Economy 53, 100984.‏
Hosseini, S., Ebrahimi, M., Sayadi, M., 2019. Abundant natural resources and financial development in Iran. M.Sc. Thesis, Energy Economic, University of Kharazmi, unpublished. (In Persian)
Ibrahim, M., Alagidede, P., 2018. Nonlinearities in financial development-economic growth nexus: Evidence from sub-Saharan Africa. Research in International Business and Finance 46, 95-104.‏
Ibrahim, M., Sare, Y.A., 2018. Determinants of financial development in Africa: How robust is the interactive effect of trade openness and human capital?. Economic Analysis and Policy 60, 18-26.‏
Javaheri, B., Ahmadzadeh, K., Shahveisi, H., 2021. Investigating the Effect of Natural Resources Rents and Institutional Quality on Financial Development in Developing Countries. Journal of Economic Research 80(21), 141-168.‏
Khan, Z., Hussain, M., Shahbaz, M., Yang, S., Jiao, Z., 2020. Natural resource abundance, technological innovation, and human capital nexus with financial development: a case study of China. Resources Policy 65, 101585.
Le, T. H., Chuc, A.T., Taghizadeh-Hesary, F., 2019. Financial inclusion and its impact on financial efficiency and sustainability: Empirical evidence from Asia. Borsa Istanbul Review 19(4), 310-322.‏
Le, T. H., & Tran-Nam, B., 2018. Trade liberalization, financial modernization and economic development: An empirical study of selected Asia–Pacific countries. Research in Economics 72(2), 343-355.‏
Lee, J., Strazicich, M.C., 2003. Minimum Lagrange multiplier unit root test with two structural breaks. Review of Economics and Statistics 85(4), 1082-1089.
Majidzadeh, F., Dahmardeh, N., 2022. Investigating the role of institutional quality in the impact of natural resource rents on Iran's financial development. Economic Growth and Development Research In Press.
Maki, D., 2012. Tests for cointegration allowing for an unknown number of breaks. Economic Modelling 29(5), 2011-2015.‏
Mishkin, F.S., 2009. Globalization and financial development. Journal of development Economics, 89(2), 164-169.‏
Nawaz, K., Lahiani, A., Roubaud, D., 2019. Natural resources as blessings and finance-growth nexus: A bootstrap ARDL approach in an emerging economy. Resources Policy, 60, 277-287.‏
Nili, M., Rastad, M., 2007. Addressing the growth failure of the oil economies: The role of financial development. The Quarterly Review of Economics and Finance 46(5), 726-740.‏
Pan, X., Uddin, M.K., Han, C., Pan, X., 2019. Dynamics of financial development, trade openness, technological innovation and energy intensity: evidence from Bangladesh. Energy 171, 456-464.
Rostow, W.W., 1961. The Stages of Economic Growth: A Non-com-munist Manifesto. Cambridge University Press, Cambridge.
Sachs, J.D., Warner, A.M., 2001. The curse of natural resources. European Economic Review 45(4-6), 827-838.‏
Saraç, M., Zeren, F., 2015. The dependency of Islamic bank rates on conventional bank interest rates: further evidence from Turkey. Applied Economics 47(7), 669-679.‏
Shahbaz, M., Destek, M. A., Okumus, I., Sinha, A., 2019. An empirical note on comparison between resource abundance and resource dependence in resource abundant countries. Resources Policy 60, 47-55.
Shahbaz, M., Nasir, M.A., Roubaud, D., 2018. Environmental degradation in France: the effects of FDI, financial development, and energy innovations. Energy Economics 74, 843-857.‏
Shahbaz, M., Van Hoang, T.H., Mahalik, M.K., Roubaud, D., 2017. Energy consumption, financial development and economic growth in India: new evidence from a nonlinear and asymmetric analysis. Energy Economics 63, 199-212.
Shin, Y., Yu, B., & Greenwood-Nimmo, M. (2014). Modelling asymmetric cointegration and dynamic multipliers in a nonlinear ARDL framework. In Festschrift in honor of Peter Schmidt. pp. 281-314. Springer, New York, NY.‏
Sun, Y., Ak, A., Serener, B., Xiong, D., 2020. Natural resource abundance and financial development: A case study of emerging seven (E-7) economies. Resources Policy 67, 101660.
Yu, A., Jia, Z., Zhang, W., Deng, K., Herrera, F., 2020. A dynamic credit index system for TSMEs in China using the delphi and analytic hierarchy process (AHP) methods. Sustainability 12(5), 1715.‏
Zafar, M. W., Saud, S., Hou, F., 2019. The impact of globalization and financial development on environmental quality: evidence from selected countries in the Organization for Economic Co-operation and Development (OECD). Environmental Science and Pollution Research, 26(13), 13246-13262.‏
Zaidi, S.A.H., Wei, Z., Gedikli, A., Zafar, M.W., Hou, F., Iftikhar, Y., 2019. The impact of globalization, natural resources abundance, and human capital on financial development: Evidence from thirty-one OECD countries. Resources Policy 64, 101476.
Zivot, E., Andrews, D.W.K., 2002. Further evidence on the great crash, the oil-price shock, and the unit-root hypothesis. Journal of business & Economic Statistics 20(1), 25-44.‏
Journal of Natural Environment
Volume 75, Issue 4 - Serial Number 4
November 2022
Pages 600-612