The recent global financial crisis has induced a series of failure of many conventional banks and led to an increased interest in the Islamic banking business model. This paper attempts to answer empirically the following question: What was the effect of the 2007-2008 financial crisis on the soundness of Islamic banks and their conventional peers? Using the Z-score as an indicator of bank stability, our regression analysis (covering a matched sample of 34 Islamic Banks (IBs) and 34 conventional banks (CBs) from 16 countries) shows that there is no significant difference in terms of the effect of the financial crisis on the soundness of IBs and CBs. This finding reveals that IBs are diverging from their theoretical business model which would have allowed them to keep the same level of soundness even during the crisis. United Arab Emirates and Yemen. 6 We allow a variation in the interval [50%, 150%]. 7 The null hypothesis tested by the Wilcoxon test is that the two populations represented by the respective members of the matched pairs are identical. 8 We distinguish between the first wave of the world financial crisis and its economic wave starting from 2009.
The impact of external financing on the economies of developing countries is still a subject of debate among economists and policy makers. The objective of this paper is to contribute to this debate by shedding light on the interaction between foreign direct investment (FDI) and external debt. To this end, we begin by formulating an overlapping generation growth model that integrates a banking sector and find two complementary results.First, we show that external financing boosts investment projects and accelerates the dynamic of capital accumulation and economic growth. The second one mitigates this channel by showing two opposite indirect effects of external debt and FDI. Indeed, while external debt financing increases the vulnerability to a bank run that generates a recessionary impact on economic growth, FDI attenuates this recessionary impact and plays the role of a shock absorber. We empirically confirm these results for 67 developing countries over the period 1972-2015 using the GMM estimation of growth models and panel-logit models to predict the determinants of banking crises. Hence, this study provides a comprehensive assessment of developing countries' involvement in
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