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The Impact of Islamic Capital Market on Malaysian Real Economy

Author

Listed:
  • Gani, Ibrahim Musa

    (Centre for Islamic Development Management Studies (ISDEV) Universiti Sains Malaysia 11800 Pulau Pinang MALAYSIA)

  • Bahari, Zakaria

    (Centre for Islamic Development Management Studies (ISDEV) Universiti Sains Malaysia 11800 Pulau Pinang MALAYSIA)

  • Abdul Aziz, Azreen Hamiza

    (Centre for Islamic Development Management Studies(ISDEV) Universiti Sains Malaysia 11800 Pulau Pinang MALAYSIA)

Abstract

The primary purpose of the financial sector of an economy is financial intermediation. Financial intermediation activities of channelling funds from surplus to the deficit units in the economy including through capital market affect the economic growth of a country. The role of Islamic capital market in the process of affecting the growth of an economy is another dimension in finance-growth nexus. This study empirically examines the impact of Islamic capital market on Malaysian economy. It employs the ARDL bounds test approach for cointegration. The results revealed that in the long-run, Islamic capital market contributes to the Malaysian economy by way of capital formation and the efficiency of the capital served as channels of transmitting growth. However, in the short run, only Islamic capital market measure of Islamic stock market turnover contributes to the economy with productivity of capital as the only channel of transmitting growth. Moreover, there is evidence of causality between the Islamic capital market turnover and the Malaysian economy. The findings imply that the Islamic capital market effectively channelled and pooled funds to productive investment activities. It further proves the notion that in general, Islamic finance is more inclined towards real sector growth as compared to conventional counterpart due to the emphasis on equity-based financing as opposed to debt-based financing.

Suggested Citation

  • Gani, Ibrahim Musa & Bahari, Zakaria & Abdul Aziz, Azreen Hamiza, 2020. "The Impact of Islamic Capital Market on Malaysian Real Economy," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 54(2), pages 91-103.
    • Handle: RePEc:ukm:jlekon:v:54:y:2020:i:2:p:91-103
    DOI: http://dx.doi.org/10.17576/JEM-2020-5402-8
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    References listed on IDEAS

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