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Islamic banking development and economic growth: a case of Indonesia

Author

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  • Meri Anggraini

Abstract

Purpose: In this research, an attempt has been conducted to explore the relation between Islamic banking development and economic growth of Indonesia over the periods of 2003–2014Methodology: Two models have been formulated which are financing and deposit models to indicate the relation. The analysis are using unit root test, co-integration test, and Granger causality test within the context of VECM framework. For this purpose, financing and deposit are used as a measure of Islamic Banking development, while gross domestic product (GDP) and gross fixed capital formation (GFCF) used the indicators of economic growth.Findings: The results show that there is bi-directional causality between financing and GDP also deposit and GDP reflecting the bi-directional causality between Islamic banking development and economic growth. Further results show that there is significant short-run and long-run causality running from Islamic banking development to economic growth so as short-run and long-run causality running from economic growth to Islamic banking developmentOriginality/contributions: This is the first study to used Islamic banks in Indonesia that are listed in Bank of Indonesia in 2003-2014.

Suggested Citation

  • Meri Anggraini, 2019. "Islamic banking development and economic growth: a case of Indonesia," Asian Journal of Islamic Management (AJIM), Center for Islamic Economics and Development Studies [P3EI], vol. 1(1), pages 51-65.
    • Handle: RePEc:uii:jrajim:v:1:y:2019:i:1:p:51-65:id:14534
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    File URL: https://journal.uii.ac.id/AJIM/article/view/14534/9857
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