Finance - growth nexus: evidence from systemically important Islamic finance countries

Abstract

Purpose: The purpose of this study is to examine the effects of financial development on the economic growth of jurisdictions with systemically important Islamic finance. Design/methodology/approach: The authors use several estimation methods. The primary analysis is based on the LSDVC method using a sample of 23 countries covering the period of 2000–2019. Findings: The findings suggest that the financial sector may not be a significant factor in determining economic growth, or that it may decrease it depending on the proxy used. These results are in line with recent studies and robust across different estimation specifications and methods used. Practical implications: Finance practitioners may reconsider the way they conduct their daily activities as their impact on economic growth is fading away. Similarly, policymakers should consider the role that financial development plays in economic growth alongside other factors that may influence its impact. It may be necessary to examine the moderating effects of institutional development on the relationship between finance and growth and consider the channels through which financial development can contribute to economic growth. Additionally, it would be useful to study the impact of Islamic finance on economic growth using different data sources. Originality/value: Although the topic has been explored using different data sets and focusing on different samples, it has not been explored considering the impact of Islamic finance development on economic growth. Given the global appeal of the Islamic finance industry, it is worth investigating its significance for economic growth.