Abstract
This study analyzes the impact of petroleum and non-petroleum indices on the financial development of the Sultanate of Oman from 1978 to 2017. To this end, it uses the petroleum proxy of oil rents (% of gross domestic product, GDP) and the non-petroleum proxy of industry (including construction) value added (% of GDP); agriculture, forestry, and fishing value added (% of GDP); and services value added (% of GDP) to determine the effect on financial development, measured by the amount of domestic credit extended to the private sector by banks (% of GDP). It applies an autoregressive distributed lag (ARDL) model. The long-term equation illustrates that the agriculture and industry GDPs have a negative and significant relationship with domestic credit in Oman. However, the oil and service sector GDPs promote financial development. The short-term equation illustrates that the oil, agricultural, and service sectors have positive and significant effects on domestic credit. The conclusion is that the economy of Oman is still in the first phase of economic diversification. Accordingly, the government should use oil revenues to develop various non-oil industrial sectors. This would enhance the country’s competitiveness in the global economy and positively contribute to improving the liquidity of the banking sector for stimulating credit at the macroeconomic level.
Highlights
Natural resources, crude petroleum, play a vital role in the economic development and sustainable growth of countries
The findings demonstrate that a long-term equation has been estimated, which illustrates that the agriculture and industry sectors have a negative and significant relationship with the credit bank in Oman; its oil and service sector gross domestic product (GDP) promotes financial development
Domestic credit increases by 4.25% when oil GDP increases by 1%, while an increase in the service sector in Oman leads to a 1.38% improvement in financial development
Summary
Crude petroleum, play a vital role in the economic development and sustainable growth of countries. The global financial crisis of 2007made many oil-reliant countries realize the perils of a global economic slowdown and its negative impact on their own economic growth, which could potentially lead to social unrest and upheaval (Ajmi et al 2015). These countries have realized the urgent need to diversify their revenue sources and reduce their dependence on the petroleum sector (Oladosu 2009). The development of the economic and financial sector has become a necessity in many countries to achieve sustainable development goals In this context, the Central Office of Statistics for Bank Credit was established in 1978 within the Central Bank of Oman. Borrowers are expected to become more committed to repaying their loans on time, knowing that the credit information would be shared and controlled by other institutions before granting new loans (Central Bank of Oman 2017)
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