Impact of Islamic Finance on Economic Growth in Egypt

Abstract

The importance of Islamic finance is increasing worldwide not only in countries which its majority are Muslims but also in countries where Muslims are minority such as Japan and the United Kingdom whereas the number of Islamic financial institutions has increased significantly in the Middle East and Southeast Asia, however, the literature that examined Islamic finance impact on the real economy is rare, thus, the aim of this paper is to examine the effect of Islamic finance, specifically Islamic banking, on economic growth and on investment in Egypt through two empirical models; the first one examines the impact of Islamic finance on economic growth and the second one examines the impact of Islamic finance on investment. For both models, the paper utilizes annual time series data during the period from 2002 up to 2021 and employs Autoregressive Distributed Lag (ARDL) bounds testing approach, and Error Correction Model (ECM). The results of the paper demonstrate that there is a significant positive relationship between Islamic finance and economic growth and between Islamic finance and investment in Egypt. The paper recommends increasing the accessibility to Islamic financial services by increasing the Islamic banks branches and ATMs and Islamic banks should care about marketing of its products.