Islamic Financing for Economic Growth and Labour Absorption in Indonesia’s Green Development

Ayu Latifah Alfisyharin (), Basri Hasanuddin, Sanusi Fattah and Nur Dwiana Sari Saudi
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Ayu Latifah Alfisyharin: Hasanuddin University
Basri Hasanuddin: Hasanuddin University
Sanusi Fattah: Hasanuddin University
Nur Dwiana Sari Saudi: Hasanuddin University

A chapter in Proceedings of the 10th International Conference on Accounting, Management, and Economics (10th ICAME 2025), 2026, pp 2481-2496 from Springer

Abstract: Abstract This study examines the relationship between Islamic financing, economic growth, and labor absorption within the framework of green and inclusive development in Indonesia. Using a quantitative panel data approach across 33 provinces from 2010 to 2023, this research applies a simultaneous regression model (SEM) to analyze both direct and indirect effects. The findings reveal that Islamic financing has a negative and significant effect on economic growth, suggesting that current financing allocations are not optimally directed toward productive and labor-intensive sectors. Similarly, Islamic financing also exerts a negative and significant influence on labor absorption, while economic growth shows no significant effect on employment. As a result, the indirect effect of Islamic financing on labor absorption through economic growth is also insignificant. These outcomes indicate that although Islamic finance theoretically promotes equitable and sustainable growth, its implementation in Indonesia still faces structural and sectoral limitations. The study highlights the need for policy realignment to channel Islamic financing toward green, inclusive, and labor-intensive sectors to strengthen its role in supporting sustainable economic transformation.

Keywords: Islamic Financing; Economic Growth; Labor Absorption; Green Development (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6239-709-5_173

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DOI: 10.2991/978-94-6239-709-5_173

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