Financing Economic Growth with Stability from Islāmic Perspective

Abstract

Evidence has been mounting that the interest-based debt financing regime is under increasing distress. Evidence also suggests that the financial crises, whatever title they carried -exchange rate crisis or banking crisishave been debt related crises in essence. At present, data suggest that the debt-to-GDP ratio of the richest members of the G-20 is expected to reach 120% mark by 2014. There is also evidence that out of securities worth US$ 200 trillion in the global economy, no less than three-fourth represent interest-based debt. It is difficult to see how this massive debt volume can be validated by the underlying productive capacity of the global economy. This picture becomes more alarming considering the anemic state of global economic growth. There is great uncertainty with regard to interest rates. Although policy-driven interest rates are at near-zero level, there is no assurance that they will not rise as the risk and inflation premia become significant. Hence, a more serious financial crisis may be in the offing and a general collapse of asset prices may occur. This paper argues that the survival of the interest-based debt regime is becoming less tenable, as is the process of financialization that has accompanied the growth of global finance over the last four decades. The above has resulted in an unprecedented increase in economic risks; generating (adverse) nonlinearities in system's behavior. Such a behavior is nothing but a demonstration of the verse, "Allah obliterates ribā …." of the Qur'ān. As a result, the search is on for a paradigm shift towards a less volatile and more resilient financing regime. The paper proposes risk sharing based Islāmic financing as suitable alternative and also demonstrates empirically

Institutional determinants of FDI in Oman: Causality analysis framework

“…The present study results add further strength not only to its own hypotheses but also to the notions of the ‘New Institutional Economics’. This could be supported by the augmented production function approach as put forward by Cowen and Tabarrok (2011), Shaukat et al (2015), and Shaukat and Mirakhor (2017). The basic growth model 1 could explain the differences in economic development based on capital investment (FDI) and saving rates, while keeping labour growth constant, although it has failed to fully explain the great disparity in income level differences of individual countries.…”

“…Much more recent is the fourth notion that is based on the idea of a fresh line of economic thought known as the 'New Institutional Economics'-NIE. Based on NIE and Islamic Economic philosophies, Shaukat (2013) and Shaukat et al (2015) argue that the strength of the institutional arrangement in a country decided the trends and influenced the factors of economic growth, where FDI is one of those dependent factors (Shaukat & Mirakhor, 2017).…”

“…Investors' trust and safety valves rest tightly on how strong and supportive the institutional setting in a country is. To Cowen and Tabarrok (2011), the institutional and incentive structure present in an economy will augment the production function more than the physical or human capital, and more importantly it derives the best utilization of these basic factors in terms of cost‐saving (North, 1990; Shaukat, Hasan, & Alhabshi, 2015). Quality institutions such as political stability and absence of violence, government effectiveness, regulatory quality, rule of law and control of corruption are expected to lessen information asymmetries, reduce the cost of doing business, which in turn encourages foreign investment (Dkhili & Dhiab, 2018; Kurul & Yalta, 2017; Sabir, Rafique, & Abbas, 2019; WTO, 2004).…”

Capital and Liquidity Risks and Financial Stability: Pre, During and Post Financial Crisis Between Islamic and Conventional Banks in GCC Countries, in the Light of Oil Prices Decline

“…Despite the presence of long-run relationships that can be tested by using the method of Pedroni"s panel cointegration, this method could not provide the estimation of coefficient (Shaukat, Hasan, & Alhabshi, 2014). So, for the coefficients" estimation, a feasible generalized least squares (GLS) analysis is proposed because of the form of heteroskedasticity, which may be a misidentification.…”