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Assessing the contribution of Islamic finance to economic growth

Author

Listed:
  • M. Shabri Abd. Majid
  • Salina H. Kassim

Abstract

Purpose - – This purpose of this paper is to empirically examine the contribution of the Islamic banking and financial institutions (IBFIs) to economic growth in Malaysia. Design/methodology/approach - – Focusing on the post-1997 economic turmoil, the paper relies on several time series tests, such as autoregressive distributed lag (ARDL), vector error correction model (VECM) and variance decompositions (VDCs). Findings - – The paper documents significant role played by the IBFIs in Malaysian economy. In particular, significant unidirectional causality was found from the IBFIs development to economic growth, supporting the finance-growth led hypothesis or the supply-leading view. Research limitations/implications - – The paper only focuses its analysis on the role of the IBFIs in the Malaysian economy and not the financial sector as a whole. Thus, the findings of this paper are indicative, but inconclusive for the entire financial sector in the country. Practical implications - – Continuous efforts should be undertaken to promote the development of the Islamic banking industry due to its significant contribution to Malaysia’s economic growth by further improving the Islamic financial infrastructure, increasing the pool of human capital in the Islamic banking industry, providing conducive legal environment to the IBFIs and maintaining the Islamic financial sector stability. Originality/value - – This paper is the first attempt to empirically assess the contribution of Islamic banking institutions in Malaysia using ARDL, VECM and VDCs.

Suggested Citation

  • M. Shabri Abd. Majid & Salina H. Kassim, 2015. "Assessing the contribution of Islamic finance to economic growth," Journal of Islamic Accounting and Business Research, Emerald Group Publishing Limited, vol. 6(2), pages 292-310, September.
  • Handle: RePEc:eme:jiabrp:jiabr-07-2012-0050
    DOI: 10.1108/JIABR-07-2012-0050
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    Citations

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    Cited by:

    1. Алимбаева Лаура // Alimbayeva Laura, 2023. "Оценка опережающих свойств краткосрочных экономических индикаторов Казахстана. // Assessment of leading properties of short-term economic indicators of Kazakhstan," Working Papers #2023-11, National Bank of Kazakhstan.
    2. Sadia Yasmin & Mohammad Ayaz & Muhammad Ather Ashraf, 2022. "Accelerating Industrial Output Growth through Islamic Bank Decomposed Financing Optimization in Malaysia," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 4(4), pages 544-560, December.

    More about this item

    Keywords

    Malaysia; ARDL; Economic growth; Islamic banking and Islamic financial institutions; Variance decompositions; C32; O16;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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