Economic diversification and sustainable development in Bahrain, 2015–2024: the moderating role of Islamic banking performance

Alfardan, Amna Mohamed J and Sharofiddin, Ashurov (2026) Economic diversification and sustainable development in Bahrain, 2015–2024: the moderating role of Islamic banking performance. Journal of Islamic Finance, 2 (15). pp. 1-14. ISSN 2289-2109 E-ISSN 2289-2117

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Abstract

The objective of this study is to evaluate the impact of economic diversification on sustainable development in Bahrain over the 2015–2024 period and to examine the moderating role of Islamic banking performance in this relationship. Ten annual observations from official sources were disaggregated into quarterly series (N = 40) to allow for dynamic specification. Recognising that interpolation inherently adds no new information, all results are reported at both annual and quarterly frequencies. Furthermore, the findings are subjected to a rigorous eight-part robustness protocol comprising effective-sample inference, a year-block bootstrap, annual estimation, four disaggregation methods, structural break testing, twelve lag orders, four index constructions, and fully modified and dynamic ordinary least squares (OLS) estimations. The results indicate that economic diversification has no substantial direct influence on sustainable development across any dimension. This finding holds consistently, reflecting a persistent disparity between productive diversification, with non-oil output accounting for 82.5% of GDP, and fiscal diversification, with non-oil revenue accounting for only 28.0%. Conversely, Islamic banking performance is positively associated with sustainable development at both data frequencies and under all index constructions, although the specific dimension driving this association remains undetermined. While the moderation coefficient is negative in the reported baseline specification (δ = −0.044, p = 0.006), it is highly unstable across robustness checks, being significantly negative in six, significantly positive in eight, and insignificant in fifteen of twenty-nine specifications. Notably, all negative estimates rely on interpolation smoothing and a lag order rejected by both information criteria. This study introduces the first three-variable moderated model applied to Bahrain’s macroeconomic context. Its primary contribution is methodological: it demonstrates that the observed negative moderation effect is largely an artefact of specific modelling choices, while better-specified estimators suggest an amplification effect rather than a buffering effect.

Item Type:	Article (Journal)
Uncontrolled Keywords:	Economic diversification; Sustainable development; Islamic banking performance; Temporal disaggregation; Small-sample inference
Subjects:	BPH Islamic Economics BPH Islamic Economics > BPH72 Economic development. Growth. Sustainable development. Sustainability BPH Islamic Banking & Finance
Kulliyyahs/Centres/Divisions/Institutes (Can select more than one option. Press CONTROL button):	Institute of Islamic Banking & Finance (IIiBF)
Depositing User:	Dr Sharofiddin Ashurov
Date Deposited:	19 Oct 2026 10:03
Last Update:	19 Oct 2026 10:03
Queue Number:	2026-10-Q5662
URI:	http://irep.iium.edu.my/id/eprint/132011
Indexed In:	Google Scholar, MyCite

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