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Islamic Banks' Return on Depositors and Conventional Banks' Deposit Interest: Is there Causality? Evidence of Causality from Bangladesh

Author

Listed:
  • Abdus Samad

    (Department of Finance and Economics, Utah Valley University, 800 West University PKY, Orem, UT 84097, USA)

  • Mohammad Ashraful Ferdous Chowdhury

    (Department of Business Administration, Shahjalal University of Science and Technology, Sylhet, Bangladesh)

Abstract

The critiques of the Islamic bank allege that the depositors' return and the return on loans of the Islamic bank is nothing but the interest rate of the conventional banks and they simply follow the conventional banks interest rate. This paper empirically investigates the causal relation and the causal direction between the conventional banks' interest rate and the Islamic banks' return applying VEC model. The results of the VER Granger Causality/Block Exogeneity Wald Tests show unidirectional causal relation and the direction of causality ran from the Islamic banks' rate of return to the conventional banks' interest rates.

Suggested Citation

  • Abdus Samad & Mohammad Ashraful Ferdous Chowdhury, 2017. "Islamic Banks' Return on Depositors and Conventional Banks' Deposit Interest: Is there Causality? Evidence of Causality from Bangladesh," International Journal of Economics and Financial Issues, International Journal of Economics and Financial Issues, vol. 7(5), pages 432-439.
    • Handle: RePEc:eco:journ1:2017-05-52
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    References listed on IDEAS

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    Cited by:

    1. Samad, Abdus, 2018. "Is there any causality between Islamic banks’ return on depositors and conventional banks’ deposit interest: Evidence of causality from Bahrain’s financial market," Business and Economic Horizons (BEH), Prague Development Center, vol. 14(4), pages 894-912, August.

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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