The Nexus Between Islamic Banking Finance and Economic Growth in Malaysia

Ong, May Sian (2019) The Nexus Between Islamic Banking Finance and Economic Growth in Malaysia. Final Year Project (Bachelor), Tunku Abdul Rahman University College.

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Abstract

The increasing presence of Islamic banking and finance in Malaysia's financial sector and the country's exemplary role in the global Islamic finance industry has called for an evaluation of the contribution of Islamic finance to the economic growth in Malaysia. The purpose of this stud is to identify the long run and short run relationship between Islamic banking finance and economic growth in Malaysia. Malaysia real gross domestic product, Islamic financing, capital and labor force will be used as the variables. Autoregressive distributed lag (ARDL) approach is applied in this study to test cointegration and an error correction model based on ARDL approach on the quarterly data set for Malaysia covering the period from 2007 to 2016. The data is sourced from BNM’s Monthly Statistical Bulletin, Department of Statistics Malaysia and IMF’s International Financial Statistics (IFS) World Bank. The results suggest that Islamic finance is insignificantly affect the economic growth in both short run and long run. This may due to Islamic finance is still in growing progress and just start to make important contributions to the economic growth. In view of the important contributions of Islamic finance to the Malaysian economy, continuous efforts need to be undertaken to further expand the industry. This includes refinement of the legal and regulatory framework to enable healthier growth of the industry, thus further strengthens Malaysia's position as the leader in the Islamic finance industry at the global level.