Does Sukuk financing boost economic growth? Empirical evidence from Southeast Asia

Abstract

Purpose This paper aims to investigate empirically whether Sukuk financing is boosting the economic growth in Southeast Asia within the framework of the endogenous growth model. Design/methodology/approach This paper applied dynamic panel one-step system generalized method of moments as an optimal estimation approach to investigate the impact of Sukuk financing on economic growth in Southeast Asia spanning from 2013Q4–2019Q3. Sukuk financing was proxied by the total issued Sukuk holdings, while economic growth was proxied by gross domestic product. The sample covered all full-fledged Islamic financial institutions in the most developed Sukuk financial markets countries in Southeast Asia (Malaysia, Indonesia and Brunei). Findings The findings demonstrated that Sukuk financing is boosting economic growth in Southeast Asia, which reflects the significant role of the Islamic financial markets of Sukuk as a vital contributor to economic growth. Practical implications This paper would fill the literature by investigating the link between Sukuk financing and economic growth in Southeast Asia within the framework of the endogenous growth model, as the outcome of this paper serves as a guide for financial researchers, decision-makers and policymakers to improve the Sukuk market globally as an alternative financing source for the best contribution to economic growth. Originality/value This paper is the first that investigates empirically the link between Sukuk financing and economic growth in Southeast Asia with a new theoretical context of the endogenous growth model to gain robust information about this link.

Islamic finance and economic growth: the Turkish experiment

“…As well, Tabash and Anagreh (2017) stated that Islamic finance has enhanced investment and economic growth. Besides, Kassim (2016), Boukhatem and Moussa (2018), Ledhem (2020), Ledhem and Mekidiche (2020) and Ledhem and Moussaoui (2021) confirmed that economic growth is endorsed by the factor of Islamic finance, which has been used as an exogenous factor within the endogenous growth model.…”

Islamic securities (ṣukūk) and economic growth: New empirical investigation from Southeast Asia using non-parametric analysis of MCMC panel quantile regression

“…Furthermore, as reported by Azmat et al (2021), Islamic securities can depend on customers' emphasis on religiosity; this makes Islamic securities as attractive instruments for investors as other conventional assets which indicates that Islamic securities can replace conventional assets in the capital markets from this side also. Consequently, although Islamic capital markets are still small compared to the conventional capital markets (IIFM Sukuk Report, 2019, this paper indicates that Islamic capital markets are expected to be prosperous in the future as an alternative financial system that enriches economic growth through increasing the capital stock and investments, consistently with the expectations of Cevik and Bugan (2018), Ledhem (2020) and Yıldırım et al (2020).…”

“…In a recent study, Ledhem (2020) investigated the link between the financing of Islamic securities (Sukuk) and economic growth in all of Indonesia, Brunei Darussalam and Malaysia based on a quarterly sample from 2013Q4 till 2019Q3. Using panel system GMM, Ledhem (2020) examined the effect of Islamic securities on the gross domestic product (GDP) as the IES factor of economic growth. The findings indicated that Islamic securities had a positive impact on economic growth.…”

Islamic finance for entrepreneurship activities and economic growth: a parametric and non-parametric analysis from Malaysia

“…This relationship between Islamic finance and economic growth is an extension of the "supply-leading hypothesis" of Schumpeter identifications (Schumpeter and Redvers, 1934) and compatible with the "financial repression theory" of McKinnon (1973) and Shaw (1973), in which the financial development leads to economic growth. As well, Ledhem (2020) demonstrated that Islamic finance is promoting economic growth through Sukuk (Islamic bonds) markets in Southeast Asia as an exogenous factor within the model of endogenous growth. Besides, based on the study of Ledhem and Mekidiche (2020), Islamic finance is improving economic growth internationally as an exogenous factor in the model of endogenous growth.…”