Is Islamic Banking Good for Growth?

34 Pages Posted: 26 May 2015

See all articles by Patrick A. Imam

Patrick A. Imam

International Monetary Fund (IMF)

Kangni Kpodar

International Monetary Fund (IMF)

Date Written: April 2015

Abstract

The rapid growth of Islamic banking has attracted much attention lately in the economic literature. At the same time, a mature body of the literature has shown that financial development is broadly conducive to economic growth, which raises the question as to whether a similar conclusion holds for Islamic banking. Against this backdrop, this paper investigates the relationship between Islamic banking development and economic growth in a sample of low and middle income countries, using data over the period 1990-2010. The results show that, notwithstanding its relatively small size compared to the economy and the overall size of the financial system, Islamic banking is positively associated with economic growth even after controlling for various determinants, including the level of financial depth. The results are robust across across different specifications, sample composition and time periods.

Keywords: Islamic banking, Economic growth, Low-income developing countries, Financial sector, Econometric models, Time series, financial development, banks, finance, savings, risk, services, credit, interest, projects

JEL Classification: G00, G21, O10

Suggested Citation

Imam, Patrick A. and Kpodar, Kangni, Is Islamic Banking Good for Growth? (April 2015). IMF Working Paper No. 15/81, Available at SSRN: https://ssrn.com/abstract=2609646

Patrick A. Imam (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Kangni Kpodar

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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