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This paper presents new evidence of the relationship between financial market development (banking sector) and economic growth for a set of seven Middle East and North African economies over the period 1965–2002. We find evidence that in six of the seven countries, banking-sector development Granger causes increases in economic growth. However, in three of those six countries, economic growth also Granger causes banking development. Our co-integration analysis reveals that there is a stable long-run equilibrium relationship between banking-sector development and economic growth for all our countries. However, based on vector error-correction models, there is limited evidence that banking-sector development boosts economic growth in the short run.

The purpose of this paper is to investigate empirically the channels through which Islamic and/or conventional banking can spur economic growth in MENA region.

The study uses a range of developed econometric approaches, including panel cointegration technique, panel Granger causality test and a panel-based vector error correction model (VECM), to analyze explicitly all the causal relationships among Islamic banking, conventional banking development and economic growth in a unified framework.

The empirical results show that Islamic banking in MENA countries not only leads to economic growth but also affects positively and significantly conventional banking development. Thus, Islamic banking has an active role and could be classified as “supply-following” since its development only leads to economic growth, whereas conventional banking, with passive role, could be classified as “demand-following” since it only reacts to economic growth in long run.

The study has two principal limitations. It is conducted within a relatively limited time period and sample of countries. Also, the used models did not take into account the impact of others financial and macroeconomic variables like stock market development, interest rate, inflation and financial crisis.

The results have two main implications. First, in MENA countries, well-functioning Islamic banking sector could not only promote economic growth but also can be served as a development factor for their conventional one. Second, unlike conventional banks, the customer of Islamic banks seems not to be motivated by interest and profits. Rather religious factors are recommended as the main motive for investing and saving in Islamic banks.

The study tries to perceive whether there exists a substitution or complementarity effect between Islamic and conventional banking in promoting economic growth for MENA countries. This situation is neither revealed nor clarified in the relevant literature.

The importance of banking and insurance, as an important part of the financial system, has been well accepted in the growth literature. Acting as financial intermediaries they perform important functions that may contribute in economic growth. Addressing this issue, the purpose of this paper is to empirically examine the relationship between banking, insurance and economic growth in India in the post-liberalized era when the private sector was allowed to operate banking and insurance business.

In order to find the long-run and short-run relationship between banking, insurance and economic growth, the study uses the VAR-vector error correction model (VECM) along with Granger causality test to explore any causal relationship.

The results indicate that there is the long-term relationship between banking, insurance and economic growth and the causality results show a bi-directional relationship between insurance activity and economic growth; however, banking is not granger cause of insurance or economic growth rather it is economic growth that cause banking development.

The only limitation to the study is the non-availability of monthly figures of GDP. The study therefore, as suggested by RBI, uses monthly data set of Index of Industrial Production to measure economic growth.

The findings of the study give policy directions to the policymakers to make strategies that are conducive toward boosting development in insurance in order to achieve the targeted economic growth.

This work is the first attempt to study the conjoint relationship between banking, insurance and economic growth on the Indian economy after the reforms were initiated in the financial sector.

Understanding the role of financial intermediaries towards financial development and thereby the growth of an economy, this study aims to examine the long-run relationship between the development of banking and insurance sector and economic growth in India by covering different regimes including the regulated and the liberalized period.

For examining the long-run relationship between these sectors, the study uses VAR-VECM technique. Further, Granger causality test is used to check if there is the presence of any causal link among these sectors.

The findings clearly indicate long-run relationship between economic growth and the development of banking and insurance sector, while the causality results show demand following relationship in the complete period where there is bi-directional causality in the post-liberalized period from insurance to economic growth.

As banking development is not found to support economic growth, this raises serious concerns towards the complex role of banks as against theory and demands further analysis to understand their role in an economy.

As causality pattern has changed from demand following to bi-directional causality, it is vital to understand the importance of liberalization towards the economic growth of the country as well as the contribution of insurance sector towards economic growth in the liberalized environment.

This is the first effort to empirically explore the relationship between economic growth and the development of banking and insurance sector in India by covering the complete period (regulated and liberalized).

Does Islamic finance affect economic growth? The empirical literature in this area seems to be in early stages and the results are often mixed and inconclusive. This paper aims to examine the causality between financial development in general, Islamic finance in particular and real economic growth in the United Arab Emirates (UAE).

Using time series data from 1990 to 2012, a bivariate vector autoregressive model was used to document the financial development-Islamic finance-growth causal nexus and to forecast growth under various scenarios. A composite indicator, as a proxy for financial development, was determined using a non-parametric approach: data envelopment analysis.

The direction of causality runs from financial development to economic growth and the reverse causality does not drive this relationship; however, the real gross domestic product (GDP) causes Islamic financial development with no reverse effect. Furthermore, the forecasting results indicate that the past relation has been a proxy for the future where financial development leads to better progress in real economic activity. This will likely continue to stimulate the development of Islamic finance.

Because the financial markets in the UAE were established in 2000, this study ignored Islamic bonds and equity product. The value of the Sukuk listed on Dubai’s exchanges is around US$36.75bn (Thomson Reuters, 2015), reinforcing Dubai’s position as an international center for Sukuk activity. Among the most important tools of the Islamic financial sector, Sukuk deserves a closer empirical study. This can set the agenda for future work.

The financial sector appears to be one of the main drivers of real economic activity. However, more effort in the area of Islamic finance is needed to promote Shari’ah-compliant economic activities and thus better contribute toward making Dubai-UAE the capital of the Islamic economy.

A new indicator was used to evaluate the financial strength of the UAE and analyze its effect on economic development. In addition, as one of UAE’ emirates, Dubai declared its vision in 2013 to become the “capital of the Islamic economy”, this study analyzed the finance, Islamic finance and growth relations over the period 2013-2022.

The impact of Islamic finance on economic growth is an ongoing debate. The purpose of this study is to empirically evaluate how the development of Islamic finance affects the long- and short-run economic growth of Pakistan.

The institutional variables, Islamic banking development (IBD), Islamic bond market development (IBM) and Islamic stock market development (ISM), are considered as measures of Islamic financial development, and real gross domestic product (GDP) is taken as measurement proxy of economic growth. The quarter time series data from Q1:2006 to Q4:2021 is analyzed through Autoregressive distributed lag model, Bounds test, ECM and Pairwise granger causality test.

The findings of this study indicate that in the long run, there is a significant and positive correlation between IBD and ISM with the real GDP, though ISM negatively cointegrated with real GDP in the short run. In contrast, IBM and real GDP did not find cointegrated in the long run, though the relationship is significant but negative in the short run.

The findings highlight Islamic financial development in Pakistan can contribute to the country's economic development, and this can be achieved by improving the infrastructure, increasing skilled professionals, creating a favorable legal environment and ensuring financial sector stability. Investors can diversify their investments and mitigate risk by adding Islamic financial instruments to their portfolios.

This pioneering study simultaneously measures the cause and effect relationship between Islamic financial development indicators (Islamic banking, Islamic bond and Islamic stock) and economic growth in Pakistan.

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.

Through panel cointegration analysis, variance decompositions (VDCs) and impulse response functions, this study investigates the Islamic finance and growth nexus.

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.

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.

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.

This purpose of this paper is to empirically examine the contribution of the Islamic banking and financial institutions (IBFIs) to economic growth in Malaysia.

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).

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.

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.

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.

This paper is the first attempt to empirically assess the contribution of Islamic banking institutions in Malaysia using ARDL, VECM and VDCs.

There are many studies related to finance-growth nexus, but existing empirical evidences still have not provided conclusive result of the nature and direction of this relationship. Moreover, there are only few studies about finance-growth nexus seen from Islamic finance perspective, especially in Indonesia. Therefore, this study aims to examine the nature of causal relationship between Islamic finance development and economic growth in Indonesia seen from the development of Islamic banking, sukuk market and Islamic stock market.

By using quarterly data from 2002Q3 to 2017Q4, this study uses vector autoregressive (VAR) model, then uses granger causality and impulse response function to analyze the causal relationship between Islamic finance development and economic growth and also among three main sub-sectors of Islamic finance.

This study found that Islamic banking development and Islamic stock market development support neutrality hypotheses view, while sukuk market development supports supply-leading hypotheses view. Moreover, this study also found that there are unidirectional causalities from sukuk market development to Islamic banking development and from sukuk market development to Islamic stock market development.

This study focuses only on the development of Islamic finance viewed from a macro perspective and only looks at how the three main sub-sectors in Islamic finance develop. In addition, the results of research related to finance-growth nexus are also sensitive to the object of research, the method and the proxies of variables used.

To the best of the authors’ knowledge, there is no study that examines the causal relationship between Islamic finance development and economic growth in Indonesia based on its three main sub-sectors simultaneously. So, this study gives empirical evidence to contribute on finance-growth nexus discussion based on three main sub-sectors of Islamic finance development in Indonesia.

The purpose of this study is to examine the effect of Islamic banks (IBs) and macroeconomic variables on economic growth in Saudi Arabia, the United Arab Emirates, Kuwait, Malaysia, Qatar, Bahrain and Bangladesh.

Based on these criteria, 672 observations from 24 IBs in Saudi Arabia, the United Arab Emirates, Kuwait, Malaysia, Qatar, Bahrain and Bangladesh were chosen for further investigation. Time series analysis is a well-known method for determining if model variables are stationary and how long-term relationships function through cointegration analysis. This study uses impulse response function (IRF) and variance decomposition (VD) methodologies to demonstrate how each macroeconomic variable shock influences the short-term dynamic path of all system variables.

Islamic banking promotes economic growth, especially in Saudi Arabia, the UAE, Kuwait, Malaysia, Qatar, Bahrain and Bangladesh. The findings of the Islamic banking VDC test have a direct and long-term effect on economic growth.

The literature on this topic can be improved in a number of ways, including by adopting a more robust method to analyze over a longer time frame. By researching specific financing in various areas of the economy, one can gain a deeper understanding of Islamic financing. This will enable the identification of sectors that contribute to economic expansion. Future research should examine combining nations with pure Islam and dual-banking systems to acquire sufficient data.

This paper has practice and research implications. It recommends adopting the nation’s successful experiment with the Islamic banking system as a model for attaining economic growth through Islamic financing. To replicate this successful experiment, government-based decision-makers and monetary policy experts must collaborate to make Islamic money flows simple and rapid through financial channels that enhance economic growth.

The study of the contribution of Islamic banking to economic growth in developing nations, particularly those with the highest total assets (TAs) and total deposits (TDs) in the world, remains of modest value. To the best of the authors’ knowledge, this is the first study to empirically assess the impact of IBs in developing nations, particularly those with the highest TAs and TDs in the world, on economic growth as measured by gross domestic product (GDP).