Islamic Financial Development, Economic Growth and Co2 Emission in Indonesia

Abstract

This study aims to investigate the dynamic relationship between Islamic financial development, economic growth, and CO2 emissions with Environmental Kuznets Curve (EKC) approach in Indonesia over the 2000-2018 period. This study employs the Auto Regressive Distributed Lag (ARDL) bound testing approach and the Error Correction Mechanism (ECM) to examine the existence of long-run and short-run relationship between variables. From the results of the model, we do not find any support for the existence of the EKC for Indonesia. Moreover, the results present that there is no dynamic relationship in the short run among growth, Islamic finance development and CO2 emission. Long-run findings suggest that CO2 emission from transport; other sectors, excluding residential buildings and commercial and public services; and residential buildings and commercial and public services sector are significantly associated to the Islamic finance development in Indonesia. The findings of this study shows that Islamic finance development can help the country to adjust its CO2 emissions and play its role in protecting the environment by encouraging environmental-friendly and energy-efficient projects. A strong and efficient financial sector would be helpful in facilitating the investment process by advancing loans for business in condition with curbing CO2 emissions.

The Role of Islamic Economics on Covid-19 Recovery

“…Islamic social finance can also be said to play an essential role in the social safety net program for the affected community (Malik & Senjiati, 2020) while increasing knowledge literacy about types of Islamic social, financial instruments such as zakat, infaq, shadaqah, and waqf (ziswaf) so that the public more knows them in addition to Islamic commercial financial literacy which is currently still being promoted (Iskandar et al, 2020). The form of Islamic social finance contributions can vary greatly depending on the community's needs, such as direct cash assistance (BLT), assistance for material needs such as necessities, health service assistance, and so on.…”

“…In the end, all Islamic economic instruments have the potential to become a means of increasing aggregate demand and aggregate supply to the right so that the economic surplus is re-established and helps accelerate economic recovery (Iskandar et al, 2020) by alleviating the crisis faced by the middle to low-income groups.…”

The Impact of Islamic Financial Development, GDP, and Population on Environmental Quality in Indonesia

“…In the Islamic finance framework, published works on this topic are very limited. Among them are Iskandar et al (2020) who studied the dynamic relationship between CO 2 emissions, Islamic financial development, and economic growth in Indonesia using the Environmental Kuznets Curve (EKC) approach. The findings showed no significant short-term dynamic relationships between growth, development of Islamic finance, and CO 2 emissions.…”

Government Allocation and Economic Growth: An Empirical Evidence from States in Malaysia

“…The study's findings also revealed that all the variables are positively related to manufacturing sector production. Iskandar et al, (2020) determined the nature of development economics in Indonesia. Important aspects, such as variables that influence economic development in a city as a result of government allocation, are also considered.…”