Abstract
PurposeThis paper aims to investigate empirically whether Islamic securities enhance economic growth in the Southeast Asian region based on the endogenous growth theory using the non-parametric analysis.Design/methodology/approachThis paper applies panel quantile regression with Markov chain Monte Carlo optimization as an optimal non-parametric approach to investigate the effect of Islamic securities on economic growth starting from 2013Q4 to 2019Q4 in Southeast Asia. Total issued Islamic securities holdings are employed as a measure for Islamic securities, while the gross domestic product is employed as a proxy for economic growth. The sample includes all working Islamic financial foundations in the top progressive Islamic securities markets' countries of Southeast Asia (Malaysia, Indonesia and Brunei Darussalam).FindingsThe findings confirm that the increase of issuing Islamic securities in Islamic capital markets of Southeast Asia is increasing the levels of economic growth, reflecting the weighty role of the Islamic capital market development as an active contributor to economic growth.Practical implicationsThis research would fill the literature gap by exploring Islamic securities–economic growth nexus in Southeast Asia using a robust non-parametric approach based on the endogenous growth theory for better estimation results. The findings of this review serve as a roadmap for financial analysts, policymakers and decision makers to stimulate the Islamic securities markets as another source of finance which can promote the economic growth.Originality/valueThis research is the first that investigates empirically the Islamic securities–economic growth nexus in Southeast Asia using a new empirical investigation built on the non-parametric analysis and outlined within the theoretical context of the endogenous growth model to gain robust evidence about this nexus.
Highlights
Islamic finance has recently turned out to be a significant player in economic development around the world and is expected to grow to US$ 3.8 trillion by 2023 due to the expansion of its reserves (Reuters, 2020)
The main purpose of this paper is to determine empirically whether Islamic securities enhance the economic growth of Southeast Asia using the non-parametric analysis in the light of the theoretical background of endogenous growth
The findings show that Islamic securities had a positive impact on the economic growth of Southeast Asia
Summary
Islamic finance has recently turned out to be a significant player in economic development around the world and is expected to grow to US$ 3.8 trillion by 2023 due to the expansion of its reserves (Reuters, 2020). Islamic securities are currently the key Islamic finance mechanism that enhances economic development, according to Lahsasna et al (2018) and Al-Ali (2019). Islamic debt securities or Sukuk are certificates of Islamic bonds that conform with Islamic laws under which Sukuk’s benefit is interest-free but is generated from the underlying asset value (Lahsasna et al, 2018; Al-Ali, 2019). In Southeast Asia, where the Islamic finance sector is advanced in all of Malaysia, Indonesia and Brunei Darussalam as stated by Ledhem and Mekidiche (2021), the global pioneer Islamic securities markets are in Southeast Asia (Reuters, 2020).
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