Abstract
PurposeThis study aims to empirically investigate the connection between Islamic finance and economic growth in Turkey using the endogenous growth model.Design/methodology/approachIt applies quantile regression with the Markov chain marginal bootstrap resampling technique by adopting total Islamic financing as the main exogenous explanatory factor in the endogenous growth model, while the gross domestic product (GDP) is employed as a measure of economic growth. The sample consists of all full-fledged participation (Islamic) banks operating in Turkey spanning from 2013Q4 until 2019Q4. The study uses academic literature, official financial reports from the Participation Banks Association of Turkey, REDmoney Group, Islamic Financial Services Board (IFSB) and the International Monetary Fund (IMF) database.FindingsThe results show that Islamic finance is promoting economic growth in Turkey, which mirrors the success of the New Turkish Economy Program (2019–2021) which aims at boosting economic growth by enhancing the Islamic finance share in the Turkish banking sector and the global market.Research limitations/implicationsTurkey has a dual banking system (conventional and participation (Islamic)) and both can influence the country's real economy. This study is limited to the influence of Islamic banking on Turkish economic growth. The study also restricts its size and coverage from 2013Q4 to 2019Q4, to cover the years over which data for all variables included in the research are available.Practical implicationsThis paper suggests the adoption of the Turkish successful experiment as a path to reach economic growth by increasing the Islamic finance share in the banking industry for countries that seek to promote economic growth by Islamic finance, as the findings of this paper support.Originality/valueThis study is the first that examines the influence of Islamic finance on economic growth under a new theoretical framework of the endogenous growth model in Turkey using a robust non-parametric approach.
Highlights
Turkey has lately become a leading country in Islamic banking and finance (Salaam Gateway, 2020)
This study explores the influence of Islamic finance on economic growth under the endogenous growth model in Turkey
gross fixed capital formation (GFCF) was employed as a measure of investment, which is one of the main channels used by financial intermediaries that may promote economic growth (Furqani and Mulyany, 2009; Abduh and Omar, 2012; Kassim, 2016)
Summary
Turkey has lately become a leading country in Islamic banking and finance (Salaam Gateway, 2020). After more than 30 years since its creation, Turkey’s Islamic finance industry has registered notable performance and rapid transformation (Yu€ksel and Can€oz, 2017; Hajjar, 2019). Turkey has become an exemplary country for others that need to increase their Islamic banking and finance market share (Salaam Gateway, 2020). © Mohammed Ayoub Ledhem and Mohammed Mekidiche. Published in ISRA International Journal of Islamic Finance. The full terms of this licence may be seen at http:// creativecommons.org/licences/by/4.0/legalcode
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