The Islamic Banking and Economic Growth Nexus: A Panel VAR Analysis for Organization of Islamic Cooperation (OIC) Countries

Journal of Economic Cooperation and Development, 37, 1 (2016), 69-100

32 Pages Posted: 1 Nov 2018

See all articles by Duygu Zirek

Duygu Zirek

University of New Orleans - College of Business Administration - Department of Economics and Finance

Fusun Celebi Boz

Bayburt University - Department of Economics

M. Kabir Hassan

University of New Orleans - College of Business Administration - Department of Economics and Finance

Date Written: 2016

Abstract

In this paper, we investigate the impact of Islamic banking variables on economic growth in a panel setting for 14 member countries of the Organization of Islamic Countries during 1999-2011 period. We examine the short-run effects as well as long-run effects by employing the Panel VAR method. We find a positive and significant relationship between Islamic finance and economic growth. This relationship is robust with regard to several macroeconomic control variables such as capital stock, unemployment, inflation, and government expenditure. We show that an increase in the share of Islamic deposits, assets, and loans in total banking instruments results in an increase in economic growth. The results also show that in the long run, economic growth responds positively to shocks in Islamic instruments, namely Islamic deposits, investments, and size. Shocks in Islamic banking contribute to more than 3% of the forecast error in economic growth in the next 10 year period.

Suggested Citation

Zirek, Duygu and Boz, Fusun Celebi and Hassan, M. Kabir, The Islamic Banking and Economic Growth Nexus: A Panel VAR Analysis for Organization of Islamic Cooperation (OIC) Countries (2016). Journal of Economic Cooperation and Development, 37, 1 (2016), 69-100 , Available at SSRN: https://ssrn.com/abstract=3263939

Duygu Zirek

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Fusun Celebi Boz

Bayburt University - Department of Economics ( email )

Turkey

M. Kabir Hassan (Contact Author)

University of New Orleans - College of Business Administration - Department of Economics and Finance ( email )

2000 Lakeshore Drive
New Orleans, LA 70148
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
56
Abstract Views
272
rank
405,217
PlumX Metrics