Pathways to Progress for Financial Development: Leveraging Natural Resources, Technological Innovation, and Trade Openness via Quantile Modeling

ABSTRACT This study investigates the impact of natural resources, technological innovation, and trade openness on financial development in G7 countries using panel quantile regression analysis from 1990 to 2022. By employing both the Kao and Pedroni panel cointegration tests, this study establishes the long‐term relationship among the variables across multiple entities and periods. The findings demonstrate significant heterogeneity in the effects of predictors at different points of the conditional distribution of financial development. Specifically, natural resources positively impact middle quantiles, trade openness negatively impacts lower quantiles, and technological innovation positively impacts all quantiles. The Wald test for the symmetric quantiles test indicates that the residuals around the quantile regression lines are not symmetrically distributed, which stamps the varying impacts of predictors across quantiles. The results of the quantile slope equality test confirm that the effects of technological innovation and trade openness differ significantly across quantiles, whereas the impact of natural resources varies at specific quantile comparisons. Nevertheless, these findings underscore the importance of considering heterogeneity while analyzing the determinants of financial development. However, policymakers in G7 countries should be aware that the effects of natural resources, technological innovation, and trade openness are not consistent across all levels of financial development. Nevertheless, this study presents policy recommendations based on empirical findings that can successfully contribute to attaining sustainable financial development.