The impact of credit market performance on the economic security in the United Arab Emirates

This study investigates the impact of credit market performance on economic security  in the United Arab Emirates (UAE) from 1990 to 2023. Using the credit friction and  market freeze theory, advanced methodologies are employed, including the Gregory- Hansen  cointegration  test,  autoregressive  distributed  lag  (ARDL)  bounds  testing,  nonlinear ARDL (NARDL) model, the Kuznets curve, and Toda-Yamamoto causality  test. The Gregory-Hansen test identifies structural breaks, while the ARDL bounds test  confirms  a  long-term  relationship  between  economic  security  and  credit  market  components,  including  domestic  credit  supply  and  nonperforming  loans.  Results  indicate that both credit market and nonperforming loans negatively affect economic  security. Furthermore, higher lending interest rates and weak institutional quality are  detrimental, whereas rising oil prices, public expenditure, foreign capital inflows, and  real GDP contribute positively to economic security. The NARDL  results reveals an  asymmetric  effect  of  domestic  credit  supply  on  economic  security.  Utilizing  the  Kuznets curve model, the threshold relationship between economic security and credit  supply is confirmed, with an inverted U-shaped relationship. This suggests that initial  improvements  in  economic  security  lead  to  increased  credit, which  peaks  at  around  USD  158.489  billion.  Beyond  this  threshold,  further  improvements  in  economic  security lead  to reduced credit supply. Causality analysis using the Toda-Yamamoto  test  finds  bidirectional  causality  between  economic  security  and  both  oil  prices  and  public expenditure. Unidirectional causality  is detected from foreign capital inflows,  the credit market, and real GDP to economic security. However, no causality is found  between  economic  security  and  nonperforming  loans,  lending  rates,  or  institutional  quality. The findings imply that sustainable economic security in the UAE depends on  balanced  credit  market  growth,  institutional  strengthening,  and  strategic  economic  diversification beyond oil dependence. The study concludes that a well-regulated credit  market, supported by sound economic policies and institutional resilience, is essential  for enhancing long-term economic security and sustainable economic development in  the UAE.