Since 2004, Pakistan carried the banking sector under the umbrella of the Islamic financial paradigm, consequently the Islamic Banking Industry (IBI) placed an upright position in the banking and financial market of Pakistan. In this context, this study aims to analyze the effect of Shariah-compliant products of the IBI on the pace of economic growth in Pakistan.
The data set covered 13 Pakistani Islamic banks comprising four full-fledged Islamic banks and 9 conventional banks holdings standalone Islamic Branches, for the period 2004–2019. Considering nature of the empirical model and data set, the estimation was carried out with the Pooled Ordinary least squares estimation technique.
The findings of the study reveal that Shariah-compliant products have a positive effect on the pace of economic growth. This indication is based on the fact that five out of six Shariah-compliant products hold positive signs and are statistically significant. In addition, the empirical evidence shows that at large conventional financial sector signifies its role in the Shariah-compliant products and pace of economic growth nexus. Among the control variables, foreign direct investment, human capital, trade openness, inflation and private credit pose negative, whereas money supply and stock market capitalization have a positive effect on the pace of economic growth in Pakistan. Findings of the study points towards the fact that Shariah-compliant financing has great potential to enhance the economic growth of Pakistan therefore to touch the sustainable development goals (SDGs).
Having played a significant role in the growth process, Islamic bankers should portray a positive image of their industry to the government authorities. The government should design a public policy to encourage Islamic modes of finance at a macro level to increase the pace of economic growth and therefore SDGs realization.
Findings of the study present new insight into the application of Shariah-compliant products of IBI toward the realization of SDGs in case of Pakistan.
Siddique, M.A., Haq, M. and Rahim, M. (2022), "The contribution of Shariah-Compliant products to SDGs attending through the pace of economic growth: an empirical evidence from Pakistan", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 15 No. 4, pp. 681-698. https://doi.org/10.1108/IMEFM-02-2020-0062
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