Contribution of Islamic banks and macroeconomic variables to economic growth in developing countries: vector error correction model approach (VECM)

Abstract

Purpose The purpose of this study is to examine the effect of Islamic banks (IBs) and macroeconomic variables on economic growth in Saudi Arabia, the United Arab Emirates, Kuwait, Malaysia, Qatar, Bahrain and Bangladesh. Design/methodology/approach Based on these criteria, 672 observations from 24 IBs in Saudi Arabia, the United Arab Emirates, Kuwait, Malaysia, Qatar, Bahrain and Bangladesh were chosen for further investigation. Time series analysis is a well-known method for determining if model variables are stationary and how long-term relationships function through cointegration analysis. This study uses impulse response function (IRF) and variance decomposition (VD) methodologies to demonstrate how each macroeconomic variable shock influences the short-term dynamic path of all system variables. Findings Islamic banking promotes economic growth, especially in Saudi Arabia, the UAE, Kuwait, Malaysia, Qatar, Bahrain and Bangladesh. The findings of the Islamic banking VDC test have a direct and long-term effect on economic growth. Research limitations/implications The literature on this topic can be improved in a number of ways, including by adopting a more robust method to analyze over a longer time frame. By researching specific financing in various areas of the economy, one can gain a deeper understanding of Islamic financing. This will enable the identification of sectors that contribute to economic expansion. Future research should examine combining nations with pure Islam and dual-banking systems to acquire sufficient data. Practical implications This paper has practice and research implications. It recommends adopting the nation’s successful experiment with the Islamic banking system as a model for attaining economic growth through Islamic financing. To replicate this successful experiment, government-based decision-makers and monetary policy experts must collaborate to make Islamic money flows simple and rapid through financial channels that enhance economic growth. Originality/value The study of the contribution of Islamic banking to economic growth in developing nations, particularly those with the highest total assets (TAs) and total deposits (TDs) in the world, remains of modest value. To the best of the authors’ knowledge, this is the first study to empirically assess the impact of IBs in developing nations, particularly those with the highest TAs and TDs in the world, on economic growth as measured by gross domestic product (GDP).

Guest editorial: Shariah governance in Islamic banks: challenges and opportunities

“…That is, the exponential growth in Islamic finance that is already slowing down will have a knock-on effect on the ability of financial intermediaries to raise funds for the firmsnetdemanders of capitalthat pursue a pro-innovation agenda under uncertainty. Nonetheless, the net effect of investment in innovation is known to contribute to economic development internationally and with a caveat in the Muslim world (Butt et al, 2023;Naz and Gulzar, 2023;Usman et al, 2023).…”

“…The effect of robust religious monitoring in one of the largest Muslim economies shows financial development is linked to economic output. Usman et al (2023) in the titled work "Does Religion Impact Corporate Innovation in Developing Countries?" examine how religion affects corporate innovation in developing countries.…”

Does Islamic Banking Contribute to Increasing Public Welfare? Evidence from Indonesian Province Panel Data

“…Based on previous research on the contribution of Islamic banking, according to M. Anwar et al, 2020 [6] Islamic Bank Office (IBO), Total Financing (TF), and Total Deposit (TD) variables have a positive contribution to real GDP in Indonesia. In addition, Kismawadi, 2023 [11] revealed that the variables of total assets and deposits of Islamic banking can encourage economic growth in Saudi Arabia, UAE, Kuwait, Malaysia, Qatar, Bahrain, and Bangladesh. Meanwhile, according to Ghoniyah & Hartono, 2020 [12] states that financing variables and long-term deposits have a significant effect on economic growth in Malaysia.…”

Analisis Tingkat Pendidikan dan Pemanfaatan Digitalisasi Terhadap Penerapan Manajemen Keuangan Syariah pada UMKM di Kecamatan Ciamis

“…Meski keuangan syariah juga memiliki resiko, namun keuangan syariah jauh dari ketidakpastian atau gharar. Jika terkena resiko, maka keuangan syariah akan berbagi resiko tersebut (Kismawadi, 2023a)D, Yahdil:2021.…”

“…Untuk menghasilkan posisi keuangan serta kinerja yang baik, pelaku UMKM harus mengetahui serta mengimplementasikan bagaimana cara mengelola keuangan usahanya guna meningkatkan profitabilitas (Rumain, dkk, 2021, (Kamal et al, 2022Kismawadi, 2023a).…”