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The effect of Islamic banks on GDP growth: Some evidence from selected MENA countries

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  • Jamel Boukhatem
  • Fatma Ben Moussa

Abstract

The purpose of this paper is twofold. First, it seeks to establish a consistent theoretical framework for the relationship between Islamic finance and economic growth. Second, it attempts to assess empirically the effect that Islamic banking loans had on the economic growth of 13 countries in the MENA region during the 2000–2014 period. We found strong evidence to suggest that financial system development stimulated economic growth in the selected MENA countries over the studied period. Furthermore, we found that while Islamic financial development can boost economic growth, this positive effect is hindered by underdeveloped institutional frameworks. In addition, net-oil-exporting MENA countries do not appear to benefit from large oil-fueled deposits that are likely to increase the scale of loans. The findings suggest that governments should consider implementing proactive and favorable economic and institutional policies that are geared toward Islamic finance.

Suggested Citation

  • Jamel Boukhatem & Fatma Ben Moussa, 2018. "The effect of Islamic banks on GDP growth: Some evidence from selected MENA countries," Borsa Istanbul Review, Research and Business Development Department, Borsa Istanbul, vol. 18(3), pages 231-247, September.
    • Handle: RePEc:bor:bistre:v:18:y:2018:i:3:p:231-247
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    Cited by:

    1. Mensi, Walid & Hammoudeh, Shawkat & Tiwari, Aviral Kumar & Al-Yahyaee, Khamis Hamed, 2020. "Impact of Islamic banking development and major macroeconomic variables on economic growth for Islamic countries: Evidence from panel smooth transition models," Economic Systems, Elsevier, vol. 44(1).
    2. Ribed Vianneca W. Jubilee & Fakarudin Kamarudin & Ahmed Razman Abdul Latiff & Hafezali Iqbal Hussain & Khar Mang Tan, 2021. "Do Islamic versus conventional banks progress or regress in productivity level?," Future Business Journal, Springer, vol. 7(1), pages 1-22, December.
    3. Alssadek, Marwan & Benhin, James, 2023. "Natural resource curse: A literature survey and comparative assessment of regional groupings of oil-rich countries," Resources Policy, Elsevier, vol. 84(C).
    4. Ali Almeshari & Mohamed Hisham Bin Dato Haji Yahya & Fakarudin Bin Kamarudin & Sha’ari Abd Hamid, 2023. "Liquidity Creation and Economic Growth: Are They Monotonically Related? Evidence from MENA Countries," Economies, MDPI, vol. 11(1), pages 1-19, January.
    5. Mansur, Alfan, 2019. "Sharia Banking Dynamics and the Macroeconomic Responses: Evidence from Indonesia," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 53(2), pages 139-152.
    6. Md. Shabbir Alam & Mustafa Raza Rabbani & Mohammad Rumzi Tausif & Joji Abey, 2021. "Banks’ Performance and Economic Growth in India: A Panel Cointegration Analysis," Economies, MDPI, vol. 9(1), pages 1-13, March.
    7. Pablo Ponce & José Álvarez-García & Johanna Medina & María de la Cruz del Río-Rama, 2021. "Financial Development, Clean Energy, and Human Capital: Roadmap towards Sustainable Growth in América Latina," Energies, MDPI, vol. 14(13), pages 1-16, June.
    8. Muhamad Abduh & Witrie Annisa Buys & Sumayyah Abdul Aziz, 2022. "Exploring the Relationship between Islamic Financial Development, Energy Consumption, and Environmental Quality," International Journal of Energy Economics and Policy, Econjournals, vol. 12(2), pages 426-430, March.
    9. Ledhem, Mohammed Ayoub & Mekidiche, Mohammed, 2020. "Economic growth and financial performance of Islamic banks: a CAMELS approach," Islamic Economic Studies, The Islamic Research and Training Institute (IRTI), vol. 28, pages 47-62.
    10. Edi Suandi & Herri & Yulihasri & Syafrizal, 2023. "Evaluating the relationship between entrepreneurial marketing, competitive advantage, and Islamic banks performance," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 28(3), pages 599-614, September.
    11. Bouarar, Ahmed Chemseddine & Mouloudj, kamel, 2020. "Examining Awareness level of Islamic Finance among Customers of Banks in Algeria - Exploratory Study," MPRA Paper 106634, University Library of Munich, Germany.
    12. Dr. Olalekan Akinrinola & Aruwa Isah Yusuf, 2020. "Growth and Financial Performance of Islamic Banks in Nigeria: The Monetary Policy Impact," International Journal of Research and Innovation in Social Science, International Journal of Research and Innovation in Social Science (IJRISS), vol. 4(12), pages 01-09, December.
    13. Puteri Nur Balqis Megat Mazlan & Nafez Fayez Hersh & Tajul Ariffin Masron & Nurhafiza Abdul Kader Malim, 2023. "Islamic finance and governance indicators: empirical evidence from Islamic finance-permitting countries," International Journal of Disclosure and Governance, Palgrave Macmillan, vol. 20(4), pages 344-358, December.
    14. Reza Jamilah Fikri, 2018. "Monetary Transmission Mechanism Under Dual Financial System In Indonesia: Credit-Financing Channel," Journal of Islamic Monetary Economics and Finance, Bank Indonesia, vol. 4(2), pages 251-278, November.
    15. Muhammad Umar & Muhammad Safdar Sial & Yan Xu, 2021. "What Are The Channels Through Which Bank Liquidity Creation Affects GDP? Evidence From an Emerging Country," SAGE Open, , vol. 11(2), pages 21582440211, June.
    16. Juhro, Solikin M. & Syarifuddin, Ferry & Sakti, Ali, 2022. "Inclusive Welfare: On The Role of Islamic Public-Social Finance and Monetary Economics," MPRA Paper 113788, University Library of Munich, Germany.
    17. Hunjra, Ahmed Imran & Islam, Faridul & Verhoeven, Peter & Hassan, M. Kabir, 2022. "The impact of a dual banking system on macroeconomic efficiency," Research in International Business and Finance, Elsevier, vol. 61(C).
    18. Yusuf Faisal & Nirdukita Ratnawati & Egi Gumala Sari, 2021. "Profit Islamic Bank from Mudharabah and Musharakah Finance with Islamic Social Responsibility Disclosure," International Journal of Finance & Banking Studies, Center for the Strategic Studies in Business and Finance, vol. 10(3), pages 84-91, July.
    19. repec:idn:jimfjn:v:4:y:2018:i:2d:p:1-28 is not listed on IDEAS
    20. Adil Saleem & Judit Sági & Budi Setiawan, 2021. "Islamic Financial Depth, Financial Intermediation, and Sustainable Economic Growth: ARDL Approach," Economies, MDPI, vol. 9(2), pages 1-22, April.
    21. Assad Ullah & Xinshun Zhao & Muhammad Abdul Kamal & Adeel Riaz & Bowen Zheng, 2021. "Exploring asymmetric relationship between Islamic banking development and economic growth in Pakistan: Fresh evidence from a non‐linear ARDL approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 6168-6187, October.

    More about this item

    Keywords

    Islamic banking; Economic growth; MENA region; Westerlund (2007) panel cointegration test; FMOLS;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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