EFFECT OF FOREIGN DIRECT INVESTMENT RATES AND REMITTANCES ON ISLAMIC FINANCIAL INSTITUTIONS' GROWTH IN EMERGING ECONOMIES

Abstract

This study aimed to find out how important macroeconomic factors have affected the growth of Islamic banking sector in Pakistan. At the moment, Islamic banking is one of the industries that is expanding at one of quickest rates across Islamic world, particularly in Pakistan. The rate of foreign direct investment and the number of remittances were the two macroeconomic factors that the researchers looked at in order to evaluate whether or not macroeconomic variables had effect on Islamic banking growth. Scholars used model known as autoregressive distributed lag model, and they used quarterly data for all variables between years 2005 and 2021. As per results of long-run ARDL that were evaluated, foreign direct investment (FDI) has a negative and insignificant impact on growth of Islamic banking in short term, whereas remittances have positive and insignificant effect on growth of the Islamic banking. Both FDI and remittances have a positive effect on growth of Islamic banking in Pakistan over long term, with the remittances having a greater influence than FDI. In spite of fact that Islamic banks and non-Islamic banks are in competition with one another, existence of Islamic banks in a country provides solution that is acceptable for people who are religiously inclined and makes a substantial contribution to expansion of the banking sector.