Islamic Finance and Economic Growth
A Comparative System-GMM Dynamic Panel Analysis of Türkiye and Selected OIC Countries
DOI:
https://doi.org/10.59051/joaf.v17i1.988Keywords:
Sukuk, Takaful, Economic Growth, HDIAbstract
Purpose: This study examines the relationship between Islamic finance and economic growth in OIC selected countries, namely Türkiye, Saudi Arabia, the UAE, Qatar, Kuwait, Oman, Malaysia, Indonesia, and Nigeria.
Method: A dynamic panel System Generalized Method of Moments (System-GMM) is employed to estimate the effects of Islamic banking profitability, sukuk issuance, and takaful on GDP per capita while accounting for endogeneity, dynamic effects, and country-specific heterogeneity.
Results: The findings indicate that Islamic banking profitability, sukuk, and takaful positively and significantly affect GDP per capita. The results also reveal substantial cross-country differences, with Türkiye serving as the benchmark and the remaining countries exhibiting significantly different growth effects. Diagnostic tests confirm the robustness of the estimates, indicating no second-order serial correlation and the validity of the instruments under the Hansen test.
Originality / Relevance: This study extends the existing body of knowledge by mitigating endogeneity concerns, incorporating dynamic effects, and offering comparative cross-country evidence on the contribution of Islamic finance to economic growth. The empirical findings provide meaningful implications for policymakers by highlighting the potential of Islamic financial institutions and instruments as strategic mechanisms for promoting sustainable economic development.
Downloads
References
Aghion, P., Howitt, P., Brant-Collett, M., & García-Peñalosa, C. (1998). Endogenous growth theory. MIT press.
Alam, M. K., & Ullah, M. H. (2022). Contributions of Islamic finance in the economic development of Türkiye: A review. Journal of Nusantara Studies, 7(2), 336-357. DOI: https://doi.org/10.24200/jonus.vol7iss2pp336-357
Allen, F., & Santomero, A. M. (1997). The theory of financial intermediation. Journal of banking & finance, 21(11-12), 1461-1485. https://doi.org/10.1016/S0378-4266(97)00032-0
Arellano, M., & Bover, O. (1995). Another look at the instrumental variable estimation of error- components models. Journal of Econometrics, 68(1), 29-51. https://doi.org/10.1016/0304-4076(94)01642-D
Ben Jedidia Khoutem, D. (2014). Islamic banks-Sukuk markets relationships and economic development: The case of the Tunisian post-revolution economy. Journal of Islamic Accounting and Business Research, 5(1), 47-60. https://doi.org/10.1108/JIABR-07-2012-0054
Blundell, R., & Bond, S. (1998). Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87(1), 115–143. https://doi.org/10.1016/S0304-4076(98)00009-8
Caporale, G. M., & Helmi, M. H. (2018). Islamic banking, credit, and economic growth: Some empirical evidence. International Journal of Finance & Economics, 23(4), 456-477. https://doi.org/10.1002/ijfe.1632
Chowdhury, M. A. M., & Haron, R. (2021). The efficiency of Islamic Banks in the Southeast Asia (SEA) region. Future Business Journal, 7(1), 16. https://doi.org/10.1186/s43093-021-00062-z
Çinar, İ. T., & Ünsal, Y. (2022). Does Islamic banking stimulate economic growth: Evidence from subnational Turkish data. Finans Politik & Ekonomik Yorumlar, 59(661), 9-24.
Hassan, M. K., İslam, M. T., Ahmed, Z., & Sarker, J. I. (2023). Islamic banking in Bangladesh: a literature review and future research agenda. International Journal of Islamic and Middle Eastern Finance and Management, 16(5), 1030-1054. https://doi.org/10.1108/IMEFM-05-2022-0185
Hikmah, L., Hafizhah, N. Z., & Rusgianto, S. (2025). Islamic banking and economic growth: a case study in Indonesia. Jurnal MEDIASAS: Media Ilmu Syari'ah dan Ahwal Al-Syakhsiyyah, 8(1), 111-123. DOI: https://doi.org/10.58824/mediasas.v8i1.307
International Monetary Fund. (2024). IMF Data Mapper. https://www.imf.org/external/datamapper
Islamic Corporation for the Development of the Private Sector (ICD), & Refinitiv. (2022).
Islamic Finance Development Report 2022: Embracing Change. ICD and Refinitiv.
Khan, T., & Badjie, F. (2022). Islamic blended finance for circular economy impactful SMEs to achieve
SDGs. The Singapore Economic Review, 67(01), 219-244. https://doi.org/10.1142/S0217590820420060
Kismawadi, E. R. (2025). Islamic banking and economic growth: A panel data approach. Iranian Economic Review, 29(3), 934-981. https://doi.org/10.22059/ier.2023.365739.1007815
Ledhem, M. A., & Mekidiche, M. (2021). Islamic finance and economic growth nexus: an empirical evidence from Southeast Asia using dynamic panel one-step System-GMM analysis. Journal of Islamic Accounting and Business Research, 12(8), 1165-1180. https://doi.org/10.1108/JIABR-03-2021-0107
Ledhem, M. A., & Mekidiche, M. (2022). Islamic finance and economic growth: the Turkish experiment. ISRA International Journal of Islamic Finance, 14(1), 4-19. https://doi.org/10.1108/IJIF-12-2020-0255
North, D. C. (1990). Institutions, Institutional Change and Economic Performance. Cambridge: Cambridge University Press.
Tan, Y. L., & Mohamad Shafi, R. (2021). Capital market and economic growth in Malaysia: the role of ṣukūk and other sub-components. ISRA International Journal of Islamic Finance, 13(1), 102-117. https://doi.org/10.1108/IJIF-04-2019-0066
Türkiye Katılım Bankaları Birliği. (2023). Participation banks sector report 2023. Participation Banks Association of Türkiye. https://en.tkbb.org.tr
Yusof, R. M., & Bahlous, M. (2013). Islamic banking and economic growth in GCC & East Asia countries: A panel cointegration analysis. Journal of Islamic Accounting and Business Research, 4(2), 151-172. https://doi.org/10.1108/JIABR-07-2012-0044
Zarrouk, H., El Ghak, T., & Abu Al Haija, E. (2017). Financial development, Islamic finance and economic growth: evidence of the UAE. Journal of Islamic Accounting and Business Research, 8(1), 2-22. https://doi.org/10.1108/JIABR-05-2015-0020
Downloads
Published
Issue
Section
License
Copyright (c) 2026 Humayun Humta, Ibrahim Erem Sahin
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Authors who publish with this journal agree to the following terms:
- Authors retain copyright and grant the journal the right of first publication.
- The work is simultaneously licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY-NC-ND 4.0). This license permits others to download, share, and reuse the work for non-commercial purposes, provided the original authors and source are properly cited.
- Under the terms of this license, no derivative works or alterations (such as translations, adaptations, or remixes) are permitted without explicit permission from the copyright holder.
- Authors are permitted and encouraged to post their work online (e.g., in institutional repositories or on their personal website) after publication, as it can lead to productive exchanges, as well as earlier and greater citation of published work.
