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Islamic Finance and Economic Performance: A Panel Analysis in Selected Countries
Abstract
Financial crises, and stock markets over the years have amply shown how investors’ sentiment affect asset prices and the effectiveness of stock markets. Such a crisis brought down financial institutions sent stock markets tumbling, and left consumers scrambling due to subprime mortgage. With this, Islamic finance adoption has driven demand for Islamic financial products being free from interest. Hence, this study aimed to determine how Islamic finance can influence the economy of 19 selected countries adopting Islamic finance. These countries have marginal to significant scores in Islamic Finance across years. This study utilized a panel data from 2013 to 2021, which was gathered from the Global Islamic Finance Report, Global Innovation Report, and World Bank. A number of diagnostic tests and analyses were performed in order to reach a result that addressed the objectives and problem statement. The Panel Corrected Standard Errors analysis was used as the final model to treat heteroscedasticity, cross-sectional dependence, and autocorrelation. Based on the regression results, Islamic finance has a positive and statistically significant effect on the economy. Other than that, Foreign Direct Investment (FDI) showed a positive and statistically significant effect on the economic performance. Meanwhile, Unemployment Rate and Global Innovation Index do not exhibit statistically significant relationships on the economy. Consequently, the above contributions of macroeconomic variables and Islamic finance to the economy are evidence as to why governments’ representatives promote and support Islamic financing by improving or building better Islamic finance policies as well as to develop a firm foundation of Islamic finance.
Keywords
References
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DOI: https://doi.org/10.18196/ijief.v7i2.22562
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