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Globalization, Institutional Quality, and Financial Development: Perspectives from the Islamic Takaful Market

In: Islamic Financial Markets and Institutions

Author

Listed:
  • Ibrahim Muhammad Muye

    (Department of Econometrics, Tashkent State University of Economics)

  • Yusuf Karbhari

    (Cardiff University)

  • Ahmad Fahmi S. Hasan

    (Department of Accounting, School of Business and Economics, UPM)

Abstract

This study examines the effect of capital account (or financial) openness, trade openness, and institutional quality on the growth and development of the fast-emerging Islamic Insurance (Takaful) industry. We examined 24 different markets in the ASEAN and MENA region and utilize a dynamic panel GMM estimation technique to inform our study. We find that capital account openness, institutional quality, and per capita real GDP are all positive and statistically significant determinants of Takaful growth. However, we find trade openness to be negative but significant suggesting this may be due to ineffective trade policies. Our results suggest that it is quality institutions that promote Takaful growth. When testing the simultaneous openness hypothesis of Rajan and Zingales (Journal of Financial Economics, 69:5–50, 2003), we find a negative and significant effect indicating that simultaneous opening of trade and capital account is unnecessary for Takaful development. This implies that the “sequencing theory” of McKinnon (1991) proposing capital account liberalization should follow trade liberalization to enable financial sector development appears to be more appropriate.

Suggested Citation

  • Ibrahim Muhammad Muye & Yusuf Karbhari & Ahmad Fahmi S. Hasan, 2025. "Globalization, Institutional Quality, and Financial Development: Perspectives from the Islamic Takaful Market," Contributions to Economics, in: Farhad Taghizadeh-Hesary & Hassanudin Mohd Thas Thaker & M. Ishaq Bhatti & Anwar Allah Pitchay (ed.), Islamic Financial Markets and Institutions, chapter 0, pages 115-135, Springer.
    • Handle: RePEc:spr:conchp:978-981-96-8650-6_6
    DOI: 10.1007/978-981-96-8650-6_6
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