Political Islam, Democracy, and Islamic Finance Development

Abstract

Although many previous studies have explored the impact of financial development in promoting economic growth, there is relatively little evidence regarding the effect of political institutions on financial development. This chapter offers strong evidence that political Islam and democracy promote the growth of Islamic finance. The authors use a panel estimator and a sample of 13 Muslim democratic countries for the years 1985–2015 to examine the effect of Islamic political parties and democracy on Islamic finance development. The chapter’s findings provide evidences that Islamist power and democracy are key determinants of Islamic finance development in the studied countries. Moreover, democracy can be captured by political elites in emerging countries where institutions are relatively weak.

Citation

Grassa, R., Hassan, M.K. and Turunen-Red, A.H. (2018), "Political Islam, Democracy, and Islamic Finance Development", Hassan, M.K. and Rashid, M. (Ed.) Management of Islamic Finance: Principle, Practice, and Performance (International Finance Review, Vol. 19), Emerald Publishing Limited, Leeds, pp. 223-237. https://doi.org/10.1108/S1569-376720180000019012