The Infuence of Macroeconomics Factors and Political Risk on the Sukuk Market Development in Selected GCC Countries: A Panel Data Analysis

Abstract

In light of the countries' attempt to develop their economies and follow stable macroeconomic policies that stimulate the sukuk markets and the stress placed on the political stability of the countries, investigating the role of political risk and macroeconomic factors is crucial to sustain a country's Islamic financial development. Therefore, this study used the panel data to examine the influence of the macroeconomic factors and political risk on the sukuk market development in the selected GCC countries, namely Saudi Arabia, United Arab Emirate, Bahrain, Qatar and Kuwait from 2001 to 2016. The model of sukuk market development is extended by incorporating the six specific characteristics of GCC countries. The diagnostic tests affirm that the most preferred model to explain the determinants of sukuk market development is by using the Pooled Ordinary Least Square (POLS) Model. The findings reveal that the banking sector and exchange rates are negative and have significant effects on the sukuk market development. The consideration of the increasing level of trade openness is vital due to its major contribution to enhance the sukuk market development. Interestingly, this study finds a positive significant association between the political risk and the sukuk market development. In order to promote the sukuk market development in the region, it is important to develop strategies for integrating and linking the banking sector and the sukuk market in order to promote the sukuk market by creating a scale economy and the required financial market infrastructure.

The Effect of Inflation, Exchange Rate and Yield of Retail Sukuk to Trade Volume of The Retail State Sukuk Series SR-007 in Secondary Market

“…Furthermore, according to [17] the exchange rate contributes to the bond prices, while the price of the bond may affect the yield or yield rate that indirectly encourages sukuk trade activity. The exchange rate and trade openness on the secondary market is a defining of sukuk market development [18]. The government needs to consider the effect of exchange rates on each economic policy, because the rate of exchange rates has a relationship to the capital market products that are sukuk in the long term [19].…”