Financial development, Islamic finance and economic growth: evidence of the UAE

Zarrouk, Hajer and El Ghak, Teheni and Al Haija, Elias Abu,(2017), Financial development, Islamic finance and economic growth: evidence of the UAE. , ournal of Islamic Accounting and Business Research Vol. 8 No. 1, 2017 pp. 2-22, UNSPECIFIED

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Purpose – Does Islamic finance affect economic growth? The empirical literature in this area seems to be in early stages and the results are often mixed and inconclusive. This paper aims to examine the causality between financial development in general, Islamic finance in particular and real economic growth in the United Arab Emirates (UAE). Design/methodology/approach – Using time series data from 1990 to 2012, a bivariate vector autoregressive model was used to document the financial development-Islamic finance-growth causal nexus and to forecast growth under various scenarios. A composite indicator, as a proxy for financial development, was determined using a non-parametric approach: data envelopment analysis. Findings – The direction of causality runs from financial development to economic growth and the reverse causality does not drive this relationship; however, the real gross domestic product (GDP) causes Islamic financial development with no reverse effect. Furthermore, the forecasting results indicate that the past relation has been a proxy for the future where financial development leads to better progress in real economic activity. This will likely continue to stimulate the development of Islamic finance. Research limitations/implications – Because the financial markets in the UAE were established in 2000, this study ignored Islamic bonds and equity product. The value of the Sukuk listed on Dubai’s exchanges is around US$36.75bn (Thomson Reuters, 2015), reinforcing Dubai’s position as an international center for Sukuk activity. Among the most important tools of the Islamic financial sector, Sukuk deserves a closer empirical study. This can set the agenda for future work. Practical implications – The financial sector appears to be one of the main drivers of real economic activity. However, more effort in the area of Islamic finance is needed to promote Shari’ah-compliant economic activities and thus better contribute toward making Dubai-UAE the capital of the Islamic economy. Originality/value – A new indicator was used to evaluate the financial strength of the UAE and analyze its effect on economic development. In addition, as one of UAE’ emirates, Dubai declared its vision in 2013 to become the “capital of the Islamic economy”, this study analyzed the finance, Islamic finance and growth relations over the period 2013-2022.
Keywords : Islamic finance, Data envelopment analysis, Growth, Financial development, UAE, bVAR, UNSPECIFIED
Journal or Publication Title: ournal of Islamic Accounting and Business Research Vol. 8 No. 1, 2017 pp. 2-22
Volume: 18
Number: 1
Item Type: Article
Subjects: Ekonomi Islam
Depositing User: Heru Prastyo
Date Deposited: 19 Dec 2019 06:40
Last Modified: 19 Dec 2019 06:40

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