Contemporary Survey on the Empirical Literature of Islamic Finance and Economic Growth Relationship

Ibrahim Musa Gani and Zakaria Bin Bahari
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Ibrahim Musa Gani: Centre For Islamic Development Management Studies (ISDEV), University Sains Malaysia (USM), Penang, Malaysia
Zakaria Bin Bahari: Centre for Islamic Development Management Studies (ISDEV), Universiti Sains Malaysia, Penang, Malaysia

International Journal of Applied Behavioral Economics (IJABE), 2019, vol. 8, issue 2, 14-26

Abstract: Financial sector activities are part of the main ingredients for the growth of any economy. The financial activities that were most widely practiced are Interest-based conventional financial activities which are prohibited in Islam. Thus, non-interest Islamic financial activities were introduced and it has been accepted and practiced all around the globe. Therefore, this study surveyed, explored and analysed using library review method, the empirical studies conducted on Islamic finance and the economic growth nexus. The study revealed that the majority of the findings of the empirical studies are in support of a positive and significant contribution of Islamic finance to the growth of the real economy in short run and long run, few of the findings indicate an insignificant contribution. The causal relationship between Islamic finance and growth is mostly bi-directional as reported in many of the studies, but supply leading hypothesis also emerged in some of the few studies. It was concluded that Islamic finance is immensely contributing to the growth of the real economy.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:igg:jabe00:v:8:y:2019:i:2:p:14-26

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