Assessing the contribution of Islamic finance to economic growth: empirical evidence from Malaysia
Purpose– This purpose of this paper is to empirically examine the contribution of the Islamic banking and financial institutions (IBFIs) to economic growth in Malaysia. Design/methodology/approach– Focusing on the post-1997 economic turmoil, the paper relies on several time series tests, such as...
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| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
Emerald Group Publishing Limited
2015
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| Subjects: | |
| Online Access: | http://irep.iium.edu.my/46093/1/019a_JIABR_Majid-Kassim_2015.pdf http://irep.iium.edu.my/46093/ http://www.emeraldinsight.com/1759-0817.htm |
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| Institution: | Universiti Islam Antarabangsa Malaysia |
| Language: | English |
| Summary: | Purpose– This purpose of this paper is to empirically examine the contribution of the Islamic banking
and financial institutions (IBFIs) to economic growth in Malaysia.
Design/methodology/approach– Focusing on the post-1997 economic turmoil, the paper relies on
several time series tests, such as autoregressive distributed lag (ARDL), vector error correction model
(VECM) and variance decompositions (VDCs).
Findings– The paper documents significant role played by the IBFIs in Malaysian economy. In
particular, significant unidirectional causality was found from the IBFIs development to economic
growth, supporting the finance-growth led hypothesis or the supply-leading view.
Research limitations/implications– The paper only focuses its analysis on the role of the IBFIs in
the Malaysian economy and not the financial sector as a whole. Thus, the findings of this paper are
indicative, but inconclusive for the entire financial sector in the country.
Practical implications– Continuous efforts should be undertaken to promote the development of
the Islamic banking industry due to its significant contribution to Malaysia’s economic growth by
further improving the Islamic financial infrastructure, increasing the pool of human capital in the
Islamic banking industry, providing conducive legal environment to the IBFIs and maintaining the
Islamic financial sector stability.
Originality/value– This paper is the first attempt to empirically assess the contribution of Islamic
banking institutions in Malaysia using ARDL, VECM and VDCs.
KeywordsMalaysia, ARDL, Economic growth, Islamic banking and Islamic financial institutions,
Variance decompositions
Paper typeResearch paper |
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