Let beholders behold: can banks see beyond oil booms and mitigate the Dutch disease?

Adetutu, M.O. ORCID: 0000-0002-0402-7847, Ebireri, J. ORCID: 0000-0001-8730-1057, Murinde, V. and Odusanya, K. ORCID: 0000-0003-1926-8456, 2018. Let beholders behold: can banks see beyond oil booms and mitigate the Dutch disease? London: SOAS University of London.

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Abstract

While the potential role of oil booms in crowding out the tradable sector is well documented in the Dutch disease literature, the potential contribution of bank lending behaviour to the oil resource curse syndrome remains largely unexplored. In this paper, we investigate contrasting variations in bank credit flows to the tradable (manufacturing) and non-tradable (service) sectors, across 14 oil-rich economies during 1994-2017, in order to shed light on whether bank lending behaviour mitigates or accentuates the syndrome. We uncover new evidence of significant contraction in the manufacturing sector share of bank credit during oil booms, while the service sector share of bank lending expands. Overall, our results are robust to alternative tests and unequivocally reject the hypothesis that banks can see beyond oil booms by allocating credit across sectors in a manner that mimics countervailing monetary policy to intermediate oil windfalls and mitigate the Dutch disease. Rather, bank sectoral credit allocation accentuates the Dutch disease by crowding out the tradable sector.

Item Type: Working paper
Description: Centre for Global Finance (CGF) Working Paper series, No. 5/2018
Creators: Adetutu, M.O., Ebireri, J., Murinde, V. and Odusanya, K.
Publisher: SOAS University of London
Place of Publication: London
Date: 2018
Divisions: Schools > Nottingham Business School
Depositing User: Linda Sullivan
Date Added: 11 Oct 2018 10:04
Last Modified: 11 Oct 2018 10:05
URI: http://irep.ntu.ac.uk/id/eprint/34650

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