Islamic Banking and Macroeconomic Growth Nexus: Facts or Feint

Abstract

This paper aims to examine the impact of resilience and growth of the financial sector on the growth and resilience of the economy of a country. The paper also focuses on the segregated contribution of Islamic banks in economies hosting parallel banking systems and their respective significance. This study evaluates cross country panel data of 130 listed and non-listed licensed Islamic banks located in 6 countries over a period of 2004 to 2018. The data were collected through BANKSCOPE database and World Bank publications. Generalized-Method-of-Moments (GMM) was applied on data to analyze the extent of contribution of Islamic banks in the overall financial sector growth and in turn, the macroeconomic growth and resilience. The findings suggest that banking sector resilience measured through stable credit expansion may have a significant impact on economic growth and stability of a country and Islamic banks have a significant contribution in the same. The fast pace of growth of assets in the Islamic countries with parallel banking systems may not only support the economic growth of the country as an ethical and religious alternative but also an economic preference. This research is different from all past researches with respect to methodological, aeon and acclimatization perspective. Resilience is a relatively new phenomenon adopted from complex adaptive ecosystems and most studies in this area are of theoretical nature. Moreover, the fact that this research has considered segregate impact of Islamic and Conventional Commercial banks, adds to its overall value and originality.