The Dutch disease phenomenon is front and centre in explaining the poor economic performance of resource-rich economies. While it is well documented in the literature that resource discoveries or booms have adverse effects on manufacturing, little is known about the role of sectoral credit allocation in accentuating or mitigating this phenomenon. Using monthly sectoral loan data across 13 oil-rich countries over the period 1994-2017, we find the pattern of credit allocation to be consistent with the Dutch disease: oil price booms are associated with contraction (expansion) in manufacturing (services) sector share of credit. These findings are robust to a battery of robustness tests. Consequently, we argue that sectoral credit allocation is a channel through which productive resources are shifted toward the non-tradable sector at the expenses of the tradable sector. To the extent that financial systems in oil-rich economies efficiently intermediate resource windfalls, it could potentially countervail the Dutch disease syndrome
