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Islamic Banking: How Has it Diffused?

Author

Listed:
  • Kangni Kpodar

    (IMF - "Research Department International Monetary Fund (IMF)"(International Monetary Fund - IMF)

  • Patrick Imam

    (IMF - "Research Department International Monetary Fund (IMF)"(International Monetary Fund - IMF)

Abstract

This paper investigates the determinants of the pattern of Islamic bank diffusion around the world using country-level data for 1992-2006. The analysis illustrates that income per capita, share of Muslims in the population and status as an oil producer are linked to the development of Islamic banking, as are economic integration with Middle Eastern countries and proximity to Islamic financial centers. Interest rates have a negative impact on Islamic banking, reflecting the implicit benchmark for Islamic banks. The quality of institutions does not matter, probably because the often higher hurdle set by Shariah law trumps the quality of local institutions in most countries. The 9/11 attacks were not important to the diffusion of Islamic banking; but they coincided with rising oil prices, which are a significant factor in the diffusion of Islamic banking. Islamic banks also appear to be complements to, rather than substitutes for, conventional banks.

Suggested Citation

  • Kangni Kpodar & Patrick Imam, 2010. "Islamic Banking: How Has it Diffused?," Post-Print halshs-00669673, HAL.
  • Handle: RePEc:hal:journl:halshs-00669673
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00669673
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    References listed on IDEAS

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    1. Thorsten Beck & Ross Levine, 2008. "Legal Institutions and Financial Development," Springer Books, in: Claude Ménard & Mary M. Shirley (ed.), Handbook of New Institutional Economics, chapter 11, pages 251-278, Springer.
    2. Martin Čihák & Heiko Hesse, 2010. "Islamic Banks and Financial Stability: An Empirical Analysis," Journal of Financial Services Research, Springer;Western Finance Association, vol. 38(2), pages 95-113, December.
    3. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    4. Marcus Noland, 2003. "Religion, Culture, and Economic Performance," Working Paper Series WP03-8, Peterson Institute for International Economics.
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