Unleashing the Relationship Between Financialization and Natural Resource Wealth in India: Evaluating the Blessing or Curse Paradigm

Countries in their early phases of development rely heavily on natural resources. This study employs consistent data from 1971 to 2019 to test India's “Financial Resource Curse” utilizing various rent generated from natural resources, trade openness, domestic investment, and subsequent influence on financial growth. The study employs three structural breaks of 1991,2008,2016, which are expected to affect the Indian economy. The study uses an ARDL bounding test to achieve its objective, which works well in different-order integrated variables; it estimates long-run and short-run estimates. Additionally, “Impulse Response Function (IRF)” and “Variance Decomposition Analysis” were generated using “VAR Decomposition Analysis (VDA)”. According to the findings, trade openness contributes to financial progress in the short run. Initial levels of OR, TOT, MIR, and MR tend to increase FD with time. The results support the idea that a country's “Forest Resource Blessing” boosts economic activity while retaining income. CR decreases FD, initially reassuring the FRC hypothesis. Long-term trade openness declines and gross fixed capital formation adversely affect India's financial growth, as shown by the financial resource curse and the adverse effects of NR rents on that development. The NARDL model is additionally employed in this study to examine the asymmetries between natural resource development and financial development. The results show that natural resource adverse shocks positively impact financial development, confirming that financial growth rises in tandem with increased natural resource adverse shocks in the short period “Resource-Positive” shocks boost a nation's financial progress over time.