Natural resources, financial development and economic growth in selected MENA countries
Natural resources have been identified to be a significant source of revenue and wealth for resource-abundant developing countries. In this regard, the Middle East and North Africa (MENA) region has one of the world’s largest natural resource endowments. Although representing only 7.5 percent of...
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| Format: | Thesis |
| Language: | English |
| Published: |
2020
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| Subjects: | |
| Online Access: | http://psasir.upm.edu.my/id/eprint/90093/1/SPE%202020%2017%20ir.pdf http://psasir.upm.edu.my/id/eprint/90093/ |
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| Summary: | Natural resources have been identified to be a significant source of revenue and wealth
for resource-abundant developing countries. In this regard, the Middle East and North
Africa (MENA) region has one of the world’s largest natural resource endowments.
Although representing only 7.5 percent of the world’s population, the MENA region
holds 48 and 52 percent of the world’s oil and gas reserves respectively. Despite the
strategic importance of natural resources in the resource-rich countries, defined as the
leading producers and exporters of oil and gas, there is limited empirical evidence on
their economic impact and how they affect the financial development in the region.
Furthermore, theoretical considerations imply that the abundance of natural resources
might have significant long-run impacts on economic growth and financial
development. However, most existing studies disregard the role of financial
development in estimating the long-run growth impact of natural resource abundance,
and do not indicate the various channels through which natural resource abundance
affects financial development in MENA. To this end, the current research is set for
examining these issues through three objectives for a core sample of 11 selected
MENA countries over the period 1987-2015.
The first objective investigated the long-run impact of resource abundance on
economic growth while accounting for the interaction effect of financial development
in resource-abundant MENA countries. In doing so, the Fully Modified Ordinary
Least Squares (FMOLS) and Dynamic Ordinary Least Squares were employed.
Results indicated positive and significant evidence of the long-run impact of natural
resources on economic growth. In the second objective, Pooled Mean Group (PMG),
Mean Group (MG), and Dynamic Fixed Effect (DFE) were employed to determine the
channels explaining the relationship between natural resource abundance and the financial development. Findings revealed that only the corruption channel explained
the significant negative impact of natural resources on the level of financial
development. Finally, the third objective considered the possible existence of
threshold level(s) for financial development on economic growth by employing PMG,
MG, and DFE models. Empirical results suggested the presence of non-linear and
inverted U-shaped for the relationship between financial development and economic
growth.
Findings from this study have suggested that the abundance of natural resources can
generate long-run economic growth in resource-abundant MENA countries. However,
the impact of growth will be even more pronounced in countries with a relatively lower
financial development level. Additionally, the abundance of natural resources may
hinder financial development by increasing opportunities for rent-seeking and
corruption. Thus, resource-plenty countries in the MENA region will boost the level
of financial development through minimizing the degree of corruption in their
financial sectors. Moreover, the non-monotonic relationship between finance and
growth implied that further investment in financial sector development depletes the
long-run economic growth. These outcomes provide significant guidance to the
policymakers in resource-rich MENA region to encourage the potential of financial
development in boosting economic growth, by channeling the resource-rents into
productive activities. |
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