Does Islamic Financial Development Reduce Carbon Emissions? Evidence from OIC Countries

Abstract

Islamic finance has great potential in encouraging the development of social and economic infrastructure. The rapid improvement of the Islamic finance sector and the increasingly good economic growth have a positive impact on infrastructure development in the Countries of the Organization Islamic Cooperation (OIC). The study analyzed the impact of the development of the Islamic financial sector on CO2 emissions in 12 OIC countries including the

The Impact Of Islamic Finance, Economic Growth, And Globalization On CO2 Emissions

“…Several studies have previously explored the relationship between Islamic finance and carbon dioxide emissions, including research conducted in Indonesia for the 2000-2018 period using Autoregressive Distributed Lag (ARDL) and Error Correction Model (ECM) testing, showing that the development of Islamic finance can help countries to adjust carbon dioxide emissions and play its role in protecting the environment by encouraging environmentally friendly and energy-efficient projects (Iskandar et al, 2020). These results are similar to research conducted in 12 member countries of the Organization of Islamic Cooperation (OIC) for the 2013-2018 period using the Panel Corrected Standard Error (PCSE) method, showing that the development of Islamic finance has a significant effect on reducing carbon dioxide emissions, namely by encouraging energy efficiency activities and producing or consuming renewable energy (Setiawati & Salsabila, 2022).…”

“…The results of this study accept the first hypothesis and are in line with the findings of previous studies. For example, research in 12 countries of the Organization of Islamic Cooperation in 2013 to 2018 showed that Islamic finance, proxied by the issuance of sukuk and total sharia financing, contributed significantly to reducing CO2 emissions (Setiawati & Salsabila, 2022). Then, research in Indonesia from 2000 to 2018 revealed that Islamic finance contributed significantly to reducing CO2 emissions (Iskandar et al, 2020).…”

“…Researchers use various comparative methods to test how the main parameters of the Islamic financial market influence the intensity of carbon emissions, taking into account the different phases of Islamic finance development in various Islamic countries (Al-Silefanee et al, 2022). Countries that are members of the Organization of Islamic Cooperation (OIC), it shows that the development of Islamic finance has a significant influence in reducing CO2 emissions (Setiawati & Salsabila, 2022). These results differ from what happened in 30 countries with Islamic banks, where the development of Sharia banking significantly increased energy intensity so that the quality of the environment became polluted (Ibrahim et al, 2021).…”