The finance-growth nexus: is finance supply-leading or demand-following in islamic finance ? evidence from Malaysia

Ibrahim, Norhaslina and Masih, Mansur (2018): The finance-growth nexus: is finance supply-leading or demand-following in islamic finance ? evidence from Malaysia.

Abstract

This paper attempts to investigate the Granger-causality between Islamic banks and economic growth. Malaysia is taken as a case study. The methodology adopted is the standard time series techniques. The results tend to suggest that Islamic bank financing leads growth and other variables, being the most exogenous compared to others. In other words, the finance is supply-leading rather than demand-following in the context of Islamic finance in Malaysia. Thus, this finding has clear policy implications for the government to keep on enhancing Islamic banks’ development leading to a positive economic growth.

• Item Type: MPRA Paper
• Language: English
• Keywords: GDP, Islamic Banks, Vector-Error Correction Model, Long Run Structural Modelling, Variance Decompositions
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy

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