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Islamic banking and economic growth: the Indonesian experience

Author

Listed:
  • Muhamad Abduh
  • Mohd Azmi Omar

Abstract

Purpose - The purpose of this paper is to examine the short‐run and the long‐run relationships between Islamic banking development and economic growth in the case of Indonesia. Design/methodology/approach - Using quarterly data (2003:1‐2010:2), this paper utilizes the bound testing approach of cointegration and error correction models, developed within an autoregressive distributed lag (ARDL) framework. Findings - The results demonstrate a significant relationship in short‐run and long‐run periods between Islamic financial development and economic growth. The relationship, however, is neither Schumpeter's supply‐leading nor Robinson's demand‐following. It appears to be bi‐directional relationship. Originality/value - This paper uses empirical evidence to show the role of Islamic banks' financing towards economic performance of a country. To the best of the authors' knowledge, the study on the role of Islamic banking development towards economic growth is limited, particularly in the context of Indonesia.

Suggested Citation

  • Muhamad Abduh & Mohd Azmi Omar, 2012. "Islamic banking and economic growth: the Indonesian experience," International Journal of Islamic and Middle Eastern Finance and Management, Emerald Group Publishing Limited, vol. 5(1), pages 35-47, March.
    • Handle: RePEc:eme:imefmp:v:5:y:2012:i:1:p:35-47
    DOI: 10.1108/17538391211216811
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    Citations

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    Cited by:

    1. Sakina Anzar Basha & Ezzedine Ghlamallah, 2023. "The conditions for implementing Islamic banking in France [Les conditions de mise en oeuvre de la banque islamique en France]," Post-Print hal-04140771, HAL.
    2. Mansur Muhammed & Abubakar Jamilu Baita & Tufail Hussain, 2024. "Institutional quality and Islamic financial development," Modern Finance, Modern Finance Institute, vol. 2(1), pages 69-83.

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