Resource Abundance and Financial Development: Evidence from Algeria
Sidi Mohammed Chekouri *
Department of Economics, Institute of Economics and Management, University Centre of Maghnia, Maghnia, Tlemcen, Algeria.
Abderrahim Chibi
Department of Economics, Institute of Economics and Management, University Centre of Maghnia, Maghnia, Tlemcen, Algeria.
Mohamed Benbouziane
Department of Economics, Faculty of Economics and Management, University of Tlemcen, Tlemcen, Algeria.
*Author to whom correspondence should be addressed.
Abstract
This paper empirically investigates the impact of natural resource abundance on financial sector development in Algeria for the period 1984-2017 using the autoregressive distributed lag approach to cointegration analysis (ARDL). Financial development is measured by two indicators including domestic credit to the private sector and a financial development index (FD) constructed by the International Monetary Fund. The obtained results reveal a negative impact of natural resource abundance on financial development in Algeria. The effect of oil rent on both measures of financial sector development is negative and statistically significant, with stronger impact on private credit. Also, we find that the impact of institutional quality on financial development is positive and statistically significant, implying that improving the quality of institutions eventually promote financial development. Thus, our main finding confirms evidence of a symptom of the oil curse in the financial sector in Algeria. To promote the development of the financial sector in Algeria, our empirical findings have important policy implications that highlight the need to improve the quality of domestic institutions to ensure the effective management of natural resources, and reduce the adverse effect on the finance growth nexus.
Keywords: Financial development, resource curse, oil rent, Algeria, ARDL.