How Quality of Institutions Shape the Expansion of Islamic Finance
The Arab Spring is expected to enhance the weak quality of institutions in MENA countries. We show in this paper how these changes can contribute to favor the expansion of Islamic finance by analyzing the role of quality of institutions on cost efficiency of Islamic and conventional banks. We measure cost efficiency of banks on a wide dataset of banks from 17 countries in which Islamic and conventional banks coexist. We find that Islamic banks have lower cost efficiency than conventional banks, which can hamper their expansion, as greater costs are associated with higher prices. However better quality of institutions reduces the gap in efficiency between Islamic and conventional banks. Moreover we find that, if Arab countries can increase the quality of institutions, Islamic banks will not suffer from a disadvantage in efficiency relative to conventional banks. Thus, our main conclusion is that the Arab Spring can favor the development of Islamic finance by improving the quality of institutions.
|Date of creation:||2012|
|Contact details of provider:|| Postal: 61, Avenue de la Forêt Noire, F-67085 Strasbourg Cedex|
Phone: (33) 3 90 41 41 30
Fax: (33) 3 90 41 40 50
Web page: http://ifs.unistra.fr/large
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kee-Hong Bae & Vidhan K. Goyal, 2009. "Creditor Rights, Enforcement, and Bank Loans," Journal of Finance, American Finance Association, vol. 64(2), pages 823-860, 04.
- 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.
- Mariani Abdul-Majid & David Saal & Giuliana Battisti, 2010. "Efficiency in Islamic and conventional banking: an international comparison," Journal of Productivity Analysis, Springer, vol. 34(1), pages 25-43, August.
- Baele, Lieven & Farooq, Moazzam & Ongena, Steven, 2014.
"Of religion and redemption: Evidence from default on Islamic loans,"
Journal of Banking & Finance,
Elsevier, vol. 44(C), pages 141-159.
- Baele, Lieven & Farooq, Moazzam & Ongena, Steven, 2011. "Of Religion and Redemption: Evidence from Default on Islamic Loans," CEPR Discussion Papers 8504, C.E.P.R. Discussion Papers.
- Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August.
- Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
- Daron Acemoglu & Simon Johnson & James A. Robinson, 2000. "The Colonial Origins of Comparative Development: An Empirical Investigation," NBER Working Papers 7771, National Bureau of Economic Research, Inc.
- Dollar, David & Kraay, Aart, 2003. "Institutions, trade, and growth," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 133-162, January.
- Samir Srairi, 2010. "Cost and profit efficiency of conventional and Islamic banks in GCC countries," Journal of Productivity Analysis, Springer, vol. 34(1), pages 45-62, August. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:lar:wpaper:2012-08. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christophe J. Godlewski)
If references are entirely missing, you can add them using this form.