ISLAMIC BANKING AND ECONOMIC GROWTH: APPLYING THE CONVENTIONAL HYPOTHESIS
Growth in Islamic banking has gained lot of interest and attention during last few years. The debate currently shifts from theoretical to empirical framework. The growth in empirical work has given rise to a new concept, which can be called as “Islamic banking development” (IBD). It will be interest...
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Bank Indonesia
2019-05-01
|
| Series: | Journal of Islamic Monetary Economics and Finance |
| Subjects: | |
| Online Access: | http://jimf-bi.org/index.php/JIMF/article/view/1047 |
| Summary: | Growth in Islamic banking has gained lot of interest and attention during last few
years. The debate currently shifts from theoretical to empirical framework. The
growth in empirical work has given rise to a new concept, which can be called as
“Islamic banking development” (IBD). It will be interesting to test nexus between
IBD and growth, since literature suggests a positive result for conventional
finance and growth. Our study uses a panel of 24 countries for a period of 11
years using annual data (2004-2014) to test conventional hypothesis of supply
leading or demand following between IBD and growth. In addition, we also
investigate direction of causality in a panel setting between the two. Apart from
the topic, this paper differs from existing limited literature, on the basis of dataset
used and the estimation procedure to assess the nexus. Our results suggest that
IBD affect growth positively. Comprehensive tests suggest the presence of a long
run relationship between IBD and growth. Moreover, the direction of causality
seems to follow supply leading hypothesis: IBD affects economic growth, and that
evidence on a reverse causality was not found. This is true, even when we control
for CFD. |
|---|---|
| ISSN: | 2460-6146 2460-6618 |