Natural resources as blessings and finance-growth nexus: A bootstrap ARDL approach in an emerging economy

This paper examines the link between financial development and economic growth in Pakistan by considering important role of natural resources in production function for the period of 1972-2017. Capital and labour are additional contributing factors of economic growth. To determine the integrating properties of the variables, we apply SOR unit root test containing information for sharp and smooth structural breaks in the series. We also employ the bootstrapping ARDL bounds testing approach to examine the cointegration between the factors of production. The causal relationship between financial development, natural resources, capital, labour and economic growth is tested by applying the VECM Granger causality test in the presence of structural breaks. The empirical findings indicate that financial development, natural resources, capital, labour and economic growth are cointegrated for long-run association. Additionally, financial development enhances domestic production as well as economic growth. Natural resources as blessings hypothesis is validated. Capital and labour also add to economic growth. The VECM Granger causality test results show the bidirectional causal relationship between financial development and economic growth. The feedback effect also exists between natural resources and economic growth. This paper helps policy makers in designing a comprehensive policy for strengthening finance-growth by using natural resources as an economic tool.