Islamic Banking, Credit and Economic Growth: Some Empirical Evidence

29 Pages Posted: 23 Feb 2016

See all articles by Guglielmo Maria Caporale

Guglielmo Maria Caporale

Brunel University London - Department of Economics and Finance; London South Bank University; CESifo (Center for Economic Studies and Ifo Institute); German Institute for Economic Research (DIW Berlin)

Mohamad Helmi

Brunel University London

Multiple version iconThere are 2 versions of this paper

Date Written: January 26, 2016

Abstract

This paper examines the effects of Islamic banking on the causal linkages between credit and GDP by comparing two sets of seven emerging countries, the first without Islamic banks, and the second with a dual banking system including both Islamic and conventional banks. Unlike previous studies, it checks the robustness of the results by applying both time series and panel methods; moreover, it tests for both long- and short-run causality. In brief, the findings highlight significant differences between the two sets of countries reflecting the distinctive features of Islamic banks. Specifically, the time series analysis provides evidence of long-run causality running from credit to GDP in countries with Islamic banks only. This is confirmed by the panel causality tests, although in this case short-run causality in countries without Islamic banks is also found.

Keywords: credit, growth, Islamic banking causality tests

JEL Classification: C320, C330, G210, O110

Suggested Citation

Caporale, Guglielmo Maria and Helmi, Mohamad, Islamic Banking, Credit and Economic Growth: Some Empirical Evidence (January 26, 2016). CESifo Working Paper Series No. 5716, Available at SSRN: https://ssrn.com/abstract=2736849 or http://dx.doi.org/10.2139/ssrn.2736849

Guglielmo Maria Caporale (Contact Author)

Brunel University London - Department of Economics and Finance ( email )

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HOME PAGE: http://www.brunel.ac.uk/about/acad/bbs/bbsstaff/ef_staff/guglielmocaporale/

London South Bank University ( email )

Centre for Monetary and Financial Economics
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CESifo (Center for Economic Studies and Ifo Institute)

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German Institute for Economic Research (DIW Berlin) ( email )

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Mohamad Helmi

Brunel University London ( email )

Kingston Lane
Uxbridge, Middlesex UB8 3PH
United Kingdom

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