Islamic finance for entrepreneurship activities and economic growth: a parametric and non-parametric analysis from Malaysia

Purpose - The purpose of this paper is to investigate the link between Islamic finance for entrepreneurship activities and economic growth in Malaysia within the model of endogenous growth. Design/methodology/approach - This study applied a parametric analysis represented by vector autoregression (VAR) Granger causality and a non-parametric analysis represented in the bootstrapped quantile regression to examine the effect of Islamic finance for entrepreneurship activities on economic growth within the model of endogenous growth. This paper used a sample of all Islamic banks working in Malaysia covering a period from 2014 first quarter until 2019 third quarter (2014Q1–2019Q3). Findings - The findings demonstrated that Islamic finance for entrepreneurship activities are promoting economic growth in Malaysia which indicates that Islamic finance is a vital contributor to economic growth through financing entrepreneurial domains small and medium-sized enterprises. Practical implications - The analysis in this paper would fill the literature gap by investigating the link between Islamic finance for entrepreneurship activities and economic growth within the model of endogenous growth in Malaysia as this study serves as a guide for the researchers and decision-makers to the necessity of merging Islamic finance as a major player in the economy to finance the entrepreneurial domain which contributes to economic growth. Originality/value - This study is the first that investigates the relationship between Islamic finance for entrepreneurship activities and economic growth empirically using the causality and quantile regression within a new theoretical approach over the model of endogenous growth to provide a proven valuable experiment from Malaysia concerning Islamic finance for the entrepreneurial domain which promotes economic growth.