Resource Abundance and Financial Development: Evidence from Algeria

Using the autoregressive distributed lag approach to cointegration research, this paper empirically examines the effect of natural resource abundance on financial sector growth in Algeria from 1984 to 2017. (ARDL). Domestic credit to the private sector and the International Monetary Fund's financial development index (FD) are two metrics used to assess financial development. The findings show that natural resource abundance has a negative effect on Algeria's financial growth. Oil rent has a negative and statistically important impact on both measures of financial sector growth, with a 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.

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