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Islamic banking and economic growth: the Indonesian experience

Islamic banking and economic growth: the Indonesian experience Purpose – The purpose of this paper is to examine the short‐run and the long‐run relationships between Islamic banking development and economic growth in the case of Indonesia. Design/methodology/approach – Using quarterly data (2003:1‐2010:2), this paper utilizes the bound testing approach of cointegration and error correction models, developed within an autoregressive distributed lag (ARDL) framework. Findings – The results demonstrate a significant relationship in short‐run and long‐run periods between Islamic financial development and economic growth. The relationship, however, is neither Schumpeter's supply‐leading nor Robinson's demand‐following. It appears to be bi‐directional relationship. Originality/value – This paper uses empirical evidence to show the role of Islamic banks' financing towards economic performance of a country. To the best of the authors' knowledge, the study on the role of Islamic banking development towards economic growth is limited, particularly in the context of Indonesia. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Islamic and Middle Eastern Finance and Management Emerald Publishing

Islamic banking and economic growth: the Indonesian experience

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References (30)

Publisher
Emerald Publishing
Copyright
Copyright © 2012 Emerald Group Publishing Limited. All rights reserved.
ISSN
1753-8394
DOI
10.1108/17538391211216811
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to examine the short‐run and the long‐run relationships between Islamic banking development and economic growth in the case of Indonesia. Design/methodology/approach – Using quarterly data (2003:1‐2010:2), this paper utilizes the bound testing approach of cointegration and error correction models, developed within an autoregressive distributed lag (ARDL) framework. Findings – The results demonstrate a significant relationship in short‐run and long‐run periods between Islamic financial development and economic growth. The relationship, however, is neither Schumpeter's supply‐leading nor Robinson's demand‐following. It appears to be bi‐directional relationship. Originality/value – This paper uses empirical evidence to show the role of Islamic banks' financing towards economic performance of a country. To the best of the authors' knowledge, the study on the role of Islamic banking development towards economic growth is limited, particularly in the context of Indonesia.

Journal

International Journal of Islamic and Middle Eastern Finance and Management – Emerald Publishing

Published: Mar 30, 2012

Keywords: Indonesia; Islam; Banking; Islamic banking; Islamic finance; Economic growth

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