Green Growth or Financial Trap? Revisiting the Resource Curse Hypothesis with Evidence From a Panel Model

Abstract

This study revisits the resource curse hypothesis by analyzing the long-run relationship between renewable energy production and financial development using a panel ARDL approach across 21 emerging markets (2000–2020). Findings reveal a negative association between renewable energy generation and stock market performance, while institutional quality promotes financial deepening. This suggests a green financial trap, where clean energy transitions may hinder capital market growth in structurally weak economies. The study contributes by linking environmental sustainability with financial infrastructure, addressing a gap in empirical dynamics on renewable-driven financial dynamics. Unlike prior studies focused on non-renewable resource dependence, this analysis underscores structural asymmetries and institutional factors influencing financial outcomes. Policy recommendations include introducing transparency-based reporting standards and sustainability-linked regulatory reforms to reduce market vulnerability. By highlighting the financial complexities of green transitions, the paper expands the resource curse framework and offers actionable insights for emerging economies seeking balanced energy and financial strategies.