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Islamic banking and economic growth: the Indonesian experience

Abduh, Muhamad and Omar, Mohd. Azmi (2012) Islamic banking and economic growth: the Indonesian experience. International Journal of Islamic and Middle Eastern Finance and Management, 5 (1). pp. 35-47. ISSN 1753-8394

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Purpose – The purpose of this paper is to examine the short-run and the long-run relationships between Islamic banking development and economic growth in the case of Indonesia. Design/methodology/approach – Using quarterly data (2003:1-2010:2), this paper utilizes the bound testing approach of cointegration and error correction models, developed within an autoregressive distributed lag (ARDL) framework. Findings – The results demonstrate a significant relationship in short-run and long-run periods between Islamic financial development and economic growth. The relationship, however, is neither Schumpeter’s supply-leading nor Robinson’s demand-following. It appears to be bi-directional relationship. Originality/value – This paper uses empirical evidence to show the role of Islamic banks’ financing towards economic performance of a country.To the best of the authors’ knowledge, the study on the role of Islamic banking development towards economic growth is limited, particularly in the context of Indonesia. Keywords: Indonesia, Islam, Banking, Islamic banking, Islamic finance, Economic growth

Item Type: Article (Journal)
Additional Information: 6777/23696
Uncontrolled Keywords: Banking, Economic growth, Indonesia, Islam, Islamic banking, Islamic finance
Subjects: B Philosophy. Psychology. Religion > BP Islam. Bahaism. Theosophy, etc > BP1 Islam > BP173.75 Islam and economics
H Social Sciences > HB Economic Theory > HB131 Methodology.Mathematical economics. Quantitative methods
H Social Sciences > HG Finance > HG1501 Banking
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button): Institute of Islamic Banking & Finance (IIiBF)
Depositing User: Dr Muhamad Abduh
Date Deposited: 07 May 2012 08:58
Last Modified: 07 May 2012 08:58
URI: http://irep.iium.edu.my/id/eprint/23696

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