Exploring the relationships between oil price, economic growth and bank lending behaviour: the role of institutional quality

This paper explores the impact of oil price shocks on the economic growth-banking sector nexus, considering the role of institutional quality, in the case of MENA oil-importing countries. To this end, a conceptual model is developed by establishing all causal relationships between the research variables. It is tested empirically using panel ARDL with the results indicating that oil price fluctuations adversely affect economic growth and bank lending behaviour. Moreover, bank lending constitutes a strong transmission channel linking oil price shocks to economic growth for oil-importing countries. In addition, corruption and political instability impede long-run bank lending by reducing loans and increasing non-performing loans. The results have fundamental implications for researchers, bank managers and public authorities.