Bank Concentration and Economic Growth Nexus

Abstract

This paper examines the relationship between bank concentration and economic growth in Organization of Islamic Cooperation (OIC) countries. This is done using the system GMM estimators on a panel data sample consisting of 41 countries and 650 observations. Our analysis reveals that bank concentration has negative impact on economic growth and this relationship is non-linear. Furthermore, the impact of bank concentration on economic growth is found to be dependent on the country’s income and corruption levels. Therefore, it seems reasonable to conclude that bank concentration has negative impact on the economic growth in OIC countries.

Finance – growth nexus: evidence from systemically important Islamic finance countries

“…In line with the existing literature, we use three indicators of financial development: credit to the private sector provided by financial intermediaries as a percentage of GDP (PR). This measures the efficiency of funds channeled to the private sector (Al-Malkawi and Abdullah, 2011; Levine, 1997; Smolo, 2020); a ratio of liquid liabilities to GDP (LL) that measures the financial sector size and depth. It also represents banks’ ability to mobilize funds (Compton and Giedeman, 2011; King and Levine, 1993; Law and Singh, 2014; Levine, 1997; Smolo, 2020); and a ratio of broad money supply (M3) to GDP that measures financial sector size. …”

“…credit to the private sector provided by financial intermediaries as a percentage of GDP (PR). This measures the efficiency of funds channeled to the private sector (Al-Malkawi and Abdullah, 2011; Levine, 1997; Smolo, 2020);…”

“…a ratio of liquid liabilities to GDP (LL) that measures the financial sector size and depth. It also represents banks’ ability to mobilize funds (Compton and Giedeman, 2011; King and Levine, 1993; Law and Singh, 2014; Levine, 1997; Smolo, 2020); and…”

“…A number of studies show that the finance-growth relationship is not as straightforward as generally found in the literature. For example, De Gregorio and Guidotti (1995), Fernandez and Galetovic (1994), Luintel and Khan (1999), Ram (1999), Andersen and Tarp (2003), Favara (2003), Naceur and Ghazouani (2007), Hsueh et al (2013), Carr e and L'óillet (2018) and Smolo (2020Smolo ( , 2022 show that the causal relationship between financial development and economic growth is sensitive to the use of financial development indicators and the adoption of econometric techniques and sample periods. Finally, Lucas (1988) asserts that economic growth is not responsive to financial sector development, implying no causal relationship between finance and growth.…”

Bai Bithaman Ajil (BBA) and Musharakah Mutanaqisah (MM): Comparative Analysis

“…Bank Islam Malaysia Berhad (BIMB) was the first financial institution that introduced BBA in Malaysia when it was established in 1984 (Aris et al, 2012). BBA often mistakenly took as a loan though in truth it is a is a sale with deferred payment (Smolo, 2010). However, the practice of BBA in Malaysia brings forth Shariah issue where the mechanism used allow a backto-back buying and selling mode which similar to Bay al-inah.…”