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The impact of resource curse on banking efficiency: Evidence from twelve oil producing countries

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  • Umar, Muhammad
  • Ji, Xiangfeng
  • Mirza, Nawazish
  • Rahat, Birjees

Abstract

The resource curse is an evolving phenomenon in the context of financial development. In this paper, using the firm-level data, we assess the impact of resource curse on the banking sector of those countries with significant dependence on oil production. Our sample spans from 1Q2001 to 4Q2019 and includes commercial banks from twelve oil-producing countries with an oil rent (% of the GDP) being twenty percent and above. We assess the effect of resource curse on banking profit efficiency, asset quality, and solvency using interest rate spreads, credit infections, and the probability of default, respectively, during periods of varying oil prices. Our results show that during episodes of the price boom, the banking efficiency declines, credit infection worsens, and the probability of default would surge. These findings confirm the presence of resources curse and validate the reasons why countries with excess reliance on natural resources tend to have lower financial development. Considering the role of commercial banking in the financial system, these results have important implications for policymakers.

Suggested Citation

  • Umar, Muhammad & Ji, Xiangfeng & Mirza, Nawazish & Rahat, Birjees, 2021. "The impact of resource curse on banking efficiency: Evidence from twelve oil producing countries," Resources Policy, Elsevier, vol. 72(C).
    • Handle: RePEc:eee:jrpoli:v:72:y:2021:i:c:s0301420721000957
    DOI: 10.1016/j.resourpol.2021.102080
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    More about this item

    Keywords

    Resource curse; Financial system; Profit efficiency; Solvency;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources

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