Does Islamic Banking Development Favour Macroeconomic Efficiency? Evidence on the Islamic Finance – Growth Nexus

Laurent Gheeraert and Laurent Weill
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Laurent Gheeraert: Université Libre de Bruxelles

Working Papers of LaRGE Research Center from Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg

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 2000-2005, finding evidence that Islamic banking development favours macroeconomic efficiency. Furthermore, we have support for a non-linear relation with efficiency for 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 for efficiency beyond this point.

Keywords: Islamic finance; financial development; aggregate productivity; efficiency; economic growth (search for similar items in EconPapers)
JEL-codes: G21 O16 O47 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-eff and nep-gro
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Does Islamic banking development favor macroeconomic efficiency? Evidence on the Islamic finance-growth nexus (2015)
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:lar:wpaper:2014-04

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