The impacts of resource abundance and export diversity on financial development in the South Asian economic bloc

Bright Akwasi Gyamfi; Stephen Taiwo Onifade; Ilham Haouas; Festus Fatai Adedoyin

doi:10.1016/j.heliyon.2023.e15105

The impacts of resource abundance and export diversity on financial development in the South Asian economic bloc

Heliyon. 2023 Apr 1;9(4):e15105. doi: 10.1016/j.heliyon.2023.e15105. eCollection 2023 Apr.

Authors

Bright Akwasi Gyamfi¹, Stephen Taiwo Onifade², Ilham Haouas³, Festus Fatai Adedoyin⁴

Affiliations

¹ School of Management, Sir Padampat Singhania University, Bhatewar, Udaipur, 31360, Rajasthan, India.
² Faculty of Economics, Administrative and Social Sciences, Department of International Trade & Logistics, KTO Karatay University, Konya, Turkey.
³ College of Business, Abu Dhabi University, P.O. Box 59911, Abu Dhabi, United Arab Emirates.
⁴ Department of Computing and Informatics, Bournemouth University, United Kingdom.

Abstract

One of the most essential aspects of a nation's economic progress that determines the citizens' lifestyles and general wellbeing is the level of financial development (FD). Thus, the current study examines the influence of natural resources as key variable for financial development in South Asian economic bloc while accounting for the roles of export diversity, inflation, and economic expansion. The dataset utilized for the South Asian bloc stretches between 1990 and 2020. Second-generation panel econometric approaches that are robust to slope heterogeneity and cross-sectional dependence were employed in the study. The relevance and applicability of the second-generation techniques was reinforced by some preliminary assessments while the cointegration checks confirm the existence of long-run interconnectedness between financial development and the regressors. The elaborate empirical analysis that was conducted shows that export diversity and natural resources abundance exert diametric impacts on financial development of the South Asian bloc. While the former positively influences financial development, the latter's impact was significantly negative thereby signaling the resource curse tendency of the South Asian countries. Furthermore, the observed roles of economic progress and inflation on the bloc's financial development were positive and significant. Therefore, authorities in the South Asian countries need to maintain greater regulatory oversight of the resources market to ensure that rent seeking and resource abuse are avoided at all costs towards building a more prudent fiscal mechanism within a stable financial system. Authorities also need to ensure that resources are fully efficiently utilized by channeling them to production activities that create value addition to resources to harness greater exports for improved FD levels. Other policy measures were also highlighted for the South Asian stakeholders in the main text.

Keywords: Economic growth; Export diversity; Financial development; Natural resources; South Asia.