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Trade, financial openness and dual banking economies: Evidence from GCC Region

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  • Khan, Ashraf
  • Hassan, M. Kabir
  • Paltrinieri, Andrea
  • Bahoo, Salman

Abstract

The recent wave of liberalization in Gulf Cooperation Council (GCC) countries has opened up a debate on the role of Islamic finance in the financial development of an economy. Using a comprehensive dataset of 43 Islamic and 49 conventional banks for the period 2007–2015, in this paper, we investigate the impact of trade and financial openness on financial development in the GCC region. We find that trade and financial openness have a positive effect on the profitability of both banking systems, while the interaction term of openness is negative for the profitability of Islamic banks. Moreover, trade and financial openness affect Islamic banks differently than conventional banks. Notably, we unveil that trade and financial openness decrease the loan volume of Islamic banks but increase their stability.

Suggested Citation

  • Khan, Ashraf & Hassan, M. Kabir & Paltrinieri, Andrea & Bahoo, Salman, 2021. "Trade, financial openness and dual banking economies: Evidence from GCC Region," Journal of Multinational Financial Management, Elsevier, vol. 62(C).
    • Handle: RePEc:eee:mulfin:v:62:y:2021:i:c:s1042444x21000177
    DOI: 10.1016/j.mulfin.2021.100693
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    More about this item

    Keywords

    Trade openness; Financial openness; Islamic banks; Z-score; Distance-to-Default;
    All these keywords.

    JEL classification:

    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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