Do islamic or conventional mutual funds lead economic growth? evidence from Malaysia

Alchaar, Osama and Masih, Mansur (2018): Do islamic or conventional mutual funds lead economic growth? evidence from Malaysia.

Abstract

Studying the relationship between mutual funds and economic growth is not a new trend in the empirical literature. However, most of these studies were conducted using classical regression and correlation and very few studies used the cointegration techniques to address the long-run relationship yet without specifying the lead-lag nexus or causal direction that is considered to be the most important research outcome for policymakers and economists. This paper tries to test a causal direction for lead-lag relationship between conventional or Islamic mutual funds on the one hand and economic growth on the other using standard time series techniques (like VECM, VDC, IR and PP). The paper tries to identify this nexus and answer two main questions as to which leads the other, mutual funds or economic growth? And is there a difference between conventional and Islamic funds in this lead-lag relationship? It is expected that this paper will fill a gap in the literature by addressing more accurately the relationship between the two types of mutual funds and economic growth in an emerging country that is globally renowned as an Islamic finance hub (i.e. Malaysia) where 18.8 billion USD are assets under Islamic funds management. Two causal (lead-lag) chains that start from the mutual funds and end with GDP were evidenced and that both Islamic and conventional mutual funds lead economic growth, however, conventional funds have bigger role in that.

• Item Type: MPRA Paper
• Language: English
• Keywords: Islamic mutual funds, conventional mutual funds, economic growth, Malaysia
• 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; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors

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