Email this article 1.jpg){kind=logo}
Testing the Existence of Natural Resource Curse in Indonesia: The Role of Financial Development
Abstract
Natural resources may become a blessing that can contribute to societies’ welfare increases. Yet natural resource abundance could also become a curse for countries’ economic development. Numerous studies have investigated the relationship between natural resources and economic performance. However, the results remain ambiguous and have no consensus in the literature. In specific, most literature focused only on testing the curse’s existence, while studies that involve the role of financial development in mediating the nexus remain scarce. To the best of our knowledge, this is a pioneer study in a developing country endowed by natural resources. Using panel data of 33 provinces from 2012 to 2018, this study implements the Generalized Method of Moments (GMM) technique to examine the existence of the natural resource curse and scrutinize the role of financial development in mitigating the curse. Results show that Indonesia potentially experiences a natural resource curse. Nonetheless, the negative effect of natural resources on economic growth could be mitigated by enhancing the role of financial development to reach a certain threshold over economic output. This study recommends policymakers to not only increase financial development across the provinces but also pay more serious attention to other factors causing the natural resource curse in Indonesia.
Keywords
Full Text:
PDFReferences
Andersen, M. S. (2006). An introductory note on the environmental economics of the circular economy. Sustainability Science, 2(1), 133–140. https://doi.org/10.1007/s11625-006-0013-6
Arellano, M., & Bond, S. (1991). Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. The Review of Economic Studies, 58(2), 277–297. https://doi.org/10.2307/2297968
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error-components models. Journal of Econometrics, 68(1), 29–51. https://doi.org/10.1016/0304-4076(94)01642-d
Atkinson, G., & Hamilton, K. (2003). Savings, growth and the resource curse hypothesis. World Development, 31(11), 1793–1807. https://doi.org/10.1016/j.worlddev.2003.05.001
Auty, R. M. (1994). Industrial policy reform in six large newly industrializing countries: The resource curse thesis. World Development, 22(1), 11–26. https://doi.org/10.1016/0305-750x(94)90165-1
Badeeb, R. A., Lean, H. H., & Clark, J. (2017). The evolution of the natural resource curse thesis: A critical literature survey. Resources Policy, 51, 123–134. https://doi.org/10.1016/j.resourpol.2016.10.015
Barro, R. J. (1996). Determinants of economic growth: A cross-country empirical study. National Bureau of Economic Research. Retrieved from https://www.nber.org/system/files/working_papers/w5698/w5698.pdf
Beck, T. (2011). Finance and oil: is there a resource curse in financial development? SSRN Electronic Journal. European Banking Center Discussion Paper No. 2011-004. https://doi.org/10.2139/ssrn.1769803
Ben-Salha, O., Dachraoui, H., & Sebri, M. (2018). Natural resource rents and economic growth in the top resource-abundant countries: A PMG estimation. Resources Policy, 101229. https://doi.org/10.1016/j.resourpol.2018.07.005
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/10.1016/s0304-4076(98)00009-8
Cavalcanti, T. V. de V., Mohaddes, K., & Raissi, M. (2011). Growth, development and natural resources: new evidence using a heterogeneous panel analysis. The Quarterly Review of Economics and Finance, 51(4), 305–318. https://doi.org/10.1016/j.qref.2011.07.007
Das, A., Chowdhury, M., & Seaborn, S. (2016). ICT diffusion, financial development and economic growth: new evidence from low and lower middle-income countries. Journal of the Knowledge Economy, 9(3), 928–947. https://doi.org/10.1007/s13132-016-0383-7
Douglas, S., & Walker, A. (2016). Coal mining and the resource curse in the Eastern United States. Journal of Regional Science, 57(4), 568–590. https://doi.org/10.1111/jors.12310
Edwards, R. B. (2016). Natural resource sectors and human development: International and Indonesian evidence. Thesis. Australian National University
Erdoğan, S., Yıldırım, D. Ç., & Gedikli, A. (2020). Natural resource abundance, financial development and economic growth: An investigation on Next-11 countries. Resources Policy, 65, 101559. https://doi.org/10.1016/j.resourpol.2019.101559
Gelb, A.H. (1988). Oil windfalls: Blessing or curse? Oxford University Press, Oxford.
Gylfason, T. (2004). Natural resource and economic growth: from dependence to diversification. Retrieved from https://ethz.ch/content/dam/ethz/special-interest/mtec/cer-eth/resource-econ-dam/documents/research/ws-and-conf/sgvs-2005/029.pdf
Gylfason, T., & Zoega, G. (2006). Natural resources and economic growth: the role of investment. The World Economy, 29(8), 1091–1115. https://doi.org/10.1111/j.1467-9701.2006.00807.x
Havranek, T., Horvath, R., & Zeynalov, A. (2016). Natural resources and economic growth: a meta-analysis. World Development, 88, 134–151. https://doi.org/10.1016/j.worlddev.2016.07.016
Hilmawan, R., & Clark, J. (2019). An investigation of the resource curse in Indonesia. Resources Policy, 64, 101483. https://doi.org/10.1016/j.resourpol.2019.101483
Komarulzaman, A., & Alisjahbana, A. S. (2006). Testing the natural resource curse hypothesis in Indonesia: Evidence at the regional level. Working Papers in Economics and Development Studies (WoPEDS). Retrieved from https://ideas.repec.org/p/unp/wpaper/200602.html
Marques, A. C., & Pires, P. S. (2019). Is there a resource curse phenomenon for natural gas? Evidence from countries with abundant natural gas. Resources Policy, 63, 101466. https://doi.org/10.1016/j.resourpol.2019.101466
Michaels, G. (2010). The long term consequences of resource - based specialisation. The Economic Journal, 121(551), 31–57. https://doi.org/10.1111/j.1468-0297.2010.02402.x
Moradbeigi, M., & Law, S. H. (2017). The role of financial development in the oil-growth nexus. Resources Policy, 53, 164–172. https://doi.org/10.1016/j.resourpol.2017.06.016
Papyrakis, E., & Gerlagh, R. (2007). Resource abundance and economic growth in the United States. European Economic Review, 51(4), 1011–1039. https://doi.org/10.1016/j.euroecorev.2006.04.001
Rahma, H., Fauzi, A., Juanda, B., & Widjojanto, B. (2021). Fenomena natural resource curse dalam pembangunan wilayah di Indonesia. Jurnal Ekonomi dan Pembangunan Indonesia, 21(2), 148-163. https://doi.org/10.21002/jepi.v21i2.1358
Rongwei, X., & Xiaoying, Z. (2020). Is financial development hampering or improving the resource curse? New evidence from China. Resources Policy, 67, 101676. https://doi.org/10.1016/j.resourpol.2020.101676
Roodman, D. (2009). How to do Xtabond2: an introduction to difference and system GMM in Stata. The Stata Journal: Promoting Communications on Statistics and Stata, 9(1), 86–136. https://doi.org/10.1177/1536867x0900900106
Rosser, A. (2007). Escaping the resource curse: The case of Indonesia. Journal of Contemporary Asia, 37(1), 38–58. https://doi.org/10.1080/00472330601104557
Sachs, J.D., & Warner, A.M. (1995). Natural resource abundance and economic growth. National Bureau of Economic Research, Working Paper 5398. Retrieved from https://www.nber.org/system/files/working_papers/w5398/w5398.pdf
Transparency International. (2020). Corruption perceptions index. Transparency International. Retrieved from https://www.transparency.org/en/cpi/2019/index/idn
DOI: https://doi.org/10.18196/jesp.v22i2.10977
Refbacks
- There are currently no refbacks.
Copyright (c) 2021 Sedwivia Ridena, Nurarifin Nurarifin, Wawan Hermawan, Ahmad Komarulzaman
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Office:
Redaksi JESP UMY, Gedung E2 Lantai 2, Fakultas Ekonomi dan Bisnis, Universitas Muhammadiyah Yogyakarta
Jalan Brawijaya, Tamantirto, Kasihan, Bantul, Daerah Istimewa Yogyakarta 55183
Telp: (0274) 387656 ext.184
Fax: (0274) 387646
Email: jesp@umy.ac.id
Jurnal Ekonomi & Studi Pembangunan (JESP) is licensed under Creative Commons Attribution-ShareAlike 4.0 International.