Does Islamic banking development favor macroeconomic efficiency? Evidence on the Islamic finance-growth nexus

Laurent Gheeraert and Laurent Weill

Economic Modelling, 2015, vol. 47, issue C, 32-39

Abstract: This study evaluates whether the development of Islamic banking influences macroeconomic efficiency. Thus, we contribute to the analysis of the relation between Islamic finance and economic growth by applying the stochastic frontier approach to estimate technical efficiency at the country level for a sample of 70 countries. We use a unique hand-collected database that covers Islamic banks worldwide over the period of 2000 to 2005, identifying evidence that Islamic banking development favors macroeconomic efficiency. Furthermore, we provide support for a non-linear relation between efficiency and Islamic banking development, which is measured by credit or by deposits. Although increasing the development of Islamic banking enhances efficiency up to a certain point, the expansion of Islamic banking becomes detrimental to efficiency beyond this point.

Keywords: Islamic finance; Financial development; Aggregate productivity; Efficiency; Economic growth (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (34)

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Related works:
Working Paper: Does Islamic Banking Development Favour Macroeconomic Efficiency? Evidence on the Islamic Finance – Growth Nexus (2014)
Working Paper: Does Islamic Banking Development Favor Macroeconomic Efficiency? Evidence on The Islamic Finance – Growth Nexus (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:47:y:2015:i:c:p:32-39

DOI: 10.1016/j.econmod.2015.02.012

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