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Islamic finance and economic growth nexus: an empirical evidence from Southeast Asia using dynamic panel one-step system GMM analysis

Mohammed Ayoub Ledhem (Department of Economics, University Centre of MaghniaMaghnia, Tlemcen, Algeria)
Mohammed Mekidiche (Department of Economics, University Centre of MaghniaMaghnia, Tlemcen, Algeria)

Journal of Islamic Accounting and Business Research

ISSN: 1759-0817

Article publication date: 30 August 2021

Issue publication date: 4 November 2021

893

Abstract

Purpose

This paper aims to empirically explore the nexus between Islamic finance and economic growth across Southeast Asia based on the perception of the endogenous growth model.

Design/methodology/approach

This paper applied the dynamic panel one-step system GMM as an optimum estimation approach to study the influence of Islamic finance on economic growth in Southeast Asia from 2013Q4 to 2019Q4. This paper used total Islamic financing as the major exogenous explanatory factor inside the endogenous growth model, whereas the gross domestic product was used as the measurement of economic growth. The sample consisted of all complete Islamic banks operating in Southeast Asia (Malaysia, Brunei Darussalam and Indonesia).

Findings

The findings demonstrated that Islamic finance is promoting economic growth in Southeast Asia, which reflects the weighty role of Islamic finance as an energetic contributor to economic growth.

Practical implications

This paper would enrich the literature by studying the nexus between Islamic finance and economic growth in Southeast Asia based on the perception of endogenous growth model, as the results of this paper assist as an attendant for financial scholars, decision-makers and policymakers to expand Islamic finance globally as an alternative funding source for the best involvement to economic growth.

Originality/value

Despite the existing studies on the nexus between Islamic finance and economic growth, this paper is the first that explores empirically the nexus between Islamic finance and economic growth in Southeast Asia based on the theoretical background of the endogenous growth model to obtain solid information on this nexus.

Keywords

Acknowledgements

The authors would like to thank the General Directorate of Scientific Research and Technological Development “La Direction Générale de la Recherche Scientifique et du Développement Technologique (DGRSDT)” under the the Algerian Ministry of Higher Education and Scientific Research “le Ministère de l’Enseignement Supérieur et la Recherche Scientifique (Algerie)” for sponsoring this research. The authors would also like to thank the Laboratory for Money and Financial Institutions in the Arab Maghreb “MIFMA Laboratory” (Algeria) for the continuous support of the research.

Citation

Ledhem, M.A. and Mekidiche, M. (2021), "Islamic finance and economic growth nexus: an empirical evidence from Southeast Asia using dynamic panel one-step system GMM analysis", Journal of Islamic Accounting and Business Research, Vol. 12 No. 8, pp. 1165-1180. https://doi.org/10.1108/JIABR-03-2021-0107

Publisher

:

Emerald Publishing Limited

Copyright © 2021, Emerald Publishing Limited

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