Examining the dynamic linkages between the banking sector activities and the economic growth of Oman: evidence from ARDL approach

Banks serve as a channel for successfully mobilising financial resources from the surplus sectors for efficient allocation to the deficit sectors for profitable investment that would then contribute to economic development. As financial intermediation metrics, this research analyses yearly time series data for bank deposits and credit to the private sector from 1972 to 2019. The autoregressive distributed lag (ARDL) cointegration test is applied based on the augmented Dickey-Fuller unit root tests for stationarity to determine the long-term influence of financial intermediation on economic growth. Furthermore, by estimating the error correction model, the research also evaluates the short-run link between financial intermediation and economic growth. The findings indicate that neither bank deposits nor credit to the private sector significantly influences long-term and short-term economic growth. Therefore, the study recommends introducing banking policy changes to reorganise the banking sectors for Oman's diversified and sustainable economic growth to realise Vision 2040.