Abstract
Purpose This paper aims to investigate empirically whether Sukuk financing is boosting the economic growth in Southeast Asia within the framework of the endogenous growth model. Design/methodology/approach This paper applied dynamic panel one-step system generalized method of moments as an optimal estimation approach to investigate the impact of Sukuk financing on economic growth in Southeast Asia spanning from 2013Q4–2019Q3. Sukuk financing was proxied by the total issued Sukuk holdings, while economic growth was proxied by gross domestic product. The sample covered all full-fledged Islamic financial institutions in the most developed Sukuk financial markets countries in Southeast Asia (Malaysia, Indonesia and Brunei). Findings The findings demonstrated that Sukuk financing is boosting economic growth in Southeast Asia, which reflects the significant role of the Islamic financial markets of Sukuk as a vital contributor to economic growth. Practical implications This paper would fill the literature by investigating the link between Sukuk financing and economic growth in Southeast Asia within the framework of the endogenous growth model, as the outcome of this paper serves as a guide for financial researchers, decision-makers and policymakers to improve the Sukuk market globally as an alternative financing source for the best contribution to economic growth. Originality/value This paper is the first that investigates empirically the link between Sukuk financing and economic growth in Southeast Asia with a new theoretical context of the endogenous growth model to gain robust information about this link.
Highlights
Islamic finance turns out to be a major player in economic growth around the world, because of the expansion of its asset, it is predicted to grow to US$3.8tn by 2023 (Reuters, 2020)
As an extension to the studies on Sukuk and economic growth, this study examines the relationship between Sukuk financing and economic growth in the framework of the endogenous growth model, and it investigates empirically the effect of Sukuk financing as an exogenous factor of economic growth within the endogenous growth model
The main objective of this paper is to investigate empirically whether Sukuk financing is boosting the economic growth in Southeast Asia within a new theoretical investigation under the endogenous growth model
Summary
Islamic finance turns out to be a major player in economic growth around the world, because of the expansion of its asset, it is predicted to grow to US$3.8tn by 2023 (Reuters, 2020). According to Lahsasna et al (2018) and Al-Ali (2019), the main Islamic finance instrument that boosts economic growth currently is Sukuk. Sukuk are Islamic bonds certificates or Islamic debt securities that comply with Islamic laws where the profit from Sukuk is free from the interest, but it is derived from the performance of the underlying. The full terms of this licence maybe seen at http://creativecommons.org/licences/by/4.0/ legalcode
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