Islamic banking and economic growth in GCC & East Asia countries: A panel cointegration analysis
Journal of Islamic Accounting and Business Research
ISSN: 1759-0817
Article publication date: 23 September 2013
Abstract
Purpose
The purpose of this paper is to assess the contribution of Islamic finance to economic growth in countries that were early adopters of Islamic banking: Malaysia, Indonesia and the Gulf Cooperation Council (GCC) countries.
Design/methodology/approach
Through panel cointegration analysis, variance decompositions (VDCs) and impulse response functions, this study investigates the Islamic finance and growth nexus.
Findings
Islamic banking is found to contribute to economic growth both in the long run and the short run for both GCC countries and the selected East Asia (EA) countries. In the short run however, Islamic banking contributes more to economic growth in Malaysia and Indonesia compared to the GCC countries.
Practical implications
The results lend support to the view that Islamic intermediation not only leads to economic benefits but also; increases managers' entrepreneurial skills through the involvement of the lender in the decision making and the partnership like relationship between the fund provider and the entrepreneur and also; reduces agency costs which produces positive impact on both the economy and the development of the society. This serves as a motivation for other countries to continuously promote Islamic finance.
Originality/value
To assess the importance of Islamic finance to economic growth, this study compares two main regional Islamic financial hubs, the GCC and EA countries. Another novel aspect of this study is in the methodology; it employs panel cointegration analysis, VDCs and impulse response functions on the set of annual data for period of 2000-2009.
Keywords
Acknowledgements
JEL classification – G15, G21, C33This research is funded by the University of Bahrain Deanship of Scientific Research.
Citation
Mohd. Yusof, R. and Bahlous, M. (2013), "Islamic banking and economic growth in GCC & East Asia countries: A panel cointegration analysis", Journal of Islamic Accounting and Business Research, Vol. 4 No. 2, pp. 151-172. https://doi.org/10.1108/JIABR-07-2012-0044
Publisher
:Emerald Group Publishing Limited
Copyright © 2013, Emerald Group Publishing Limited