Online from: 2008
Subject Area: Accounting and Finance
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|Title:||Islamic banking and economic growth: the Indonesian experience|
|Author(s):||Muhamad Abduh, (Department of Business Administration, International Islamic University Malaysia, Kuala Lumpur, Malaysia), Mohd Azmi Omar, (IIU Institute of Islamic Banking and Finance, International Islamic University Malaysia, Kuala Lumpur, Malaysia)|
|Citation:||Muhamad Abduh, Mohd Azmi Omar, (2012) "Islamic banking and economic growth: the Indonesian experience", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 5 Iss: 1, pp.35 - 47|
|Keywords:||Banking, Economic growth, Indonesia, Islam, Islamic banking, Islamic finance|
|Article type:||Research paper|
|DOI:||10.1108/17538391211216811 (Permanent URL)|
|Publisher:||Emerald Group Publishing Limited|
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.