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The finance-growth nexus: is finance supply-leading or demand-following in islamic finance ? evidence from Malaysia

Author

Listed:
  • Ibrahim, Norhaslina
  • Masih, Mansur

Abstract

This paper attempts to investigate the Granger-causality between Islamic banks and economic growth. Malaysia is taken as a case study. The methodology adopted is the standard time series techniques. The results tend to suggest that Islamic bank financing leads growth and other variables, being the most exogenous compared to others. In other words, the finance is supply-leading rather than demand-following in the context of Islamic finance in Malaysia. Thus, this finding has clear policy implications for the government to keep on enhancing Islamic banks’ development leading to a positive economic growth.

Suggested Citation

  • Ibrahim, Norhaslina & Masih, Mansur, 2018. "The finance-growth nexus: is finance supply-leading or demand-following in islamic finance ? evidence from Malaysia," MPRA Paper 98676, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:98676
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    References listed on IDEAS

    as
    1. Khalifa Al-Yousif, Yousif, 2002. "Financial development and economic growth: Another look at the evidence from developing countries," Review of Financial Economics, Elsevier, vol. 11(2), pages 131-150.
    2. Demetriades, Panicos O. & Hussein, Khaled A., 1996. "Does financial development cause economic growth? Time-series evidence from 16 countries," Journal of Development Economics, Elsevier, vol. 51(2), pages 387-411, December.
    3. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 39(3), pages 106-135.
    4. Calderon, Cesar & Liu, Lin, 2003. "The direction of causality between financial development and economic growth," Journal of Development Economics, Elsevier, vol. 72(1), pages 321-334, October.
    5. Mansur Masih & Ali Al-Elg & Haider Madani, 2009. "Causality between financial development and economic growth: an application of vector error correction and variance decomposition methods to Saudi Arabia," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1691-1699.
    6. Yang, Yung Y. & Yi, Myung Hoon, 2008. "Does financial development cause economic growth? Implication for policy in Korea," Journal of Policy Modeling, Elsevier, vol. 30(5), pages 827-840.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    GDP; Islamic Banks; Vector-Error Correction Model; Long Run Structural Modelling; Variance Decompositions;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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