Does Islamic Finance Boost the Economic Growth? Evidence from Indonesia
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Published:
Jun 27, 2024
Keywords:
Growth, Islamic banking, Islamic bonds (sukuk), Islamic mutual munds, Islamic stocks
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Abstract
Although the growth of the sharia financial industry continues to increase in Indonesia, there is a need to understand the impact of the development of Islamic finance, including sharia banking, sharia bonds (sukuk), sharia shares, and sharia mutual funds, on Indonesia's economic growth. Previous research has highlighted a positive relationship between financial sector development and economic growth in general, but there has been no specific research examining the impact of Islamic financial instruments specifically in the Indonesian economic context. This study aims to analyze the effect of Islamic finance development consisting of Islamic banking, Islamic bonds (sukuk), Islamic stocks, and Islamic mutual funds, both partially and simultaneously, on Indonesian economic growth during the period of 2003-2022. This study uses a quantitative approach with the Ordinary Least Square (OLS) technique. The results of the study show that the Islamic banking and Islamic bonds (sukuk) have a positive and significant influence on the economic growth in Indonesia, the Islamic stocks also was found to has a positive effect on economic growth but not significant, while the Islamic mutual funds was found to has a negative and not significant effect on the economic growth. It implies that government may continuously support to sukuk for sustainable economic growth and the policy for the development of Islamic finance should be improved to increase the income of government particularly for Islamic stock and Islamic mutual fund.
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References
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Wahid, S. (2002). Jalan Pintas Menguasai SPSS. Yogyakarta (ID), Penerbit Andi.
Yadirichukwu, E. & Chigbu, E. E. (2014). The impact of capital market on economic growth: The Nigerian perspective. International Journal of Development and Sustainability, 3(4), 838–864.
Yazdan, G. F. & Sadr, S. M. H. (2012). Analysis of Islamic bank’s financing and economic growth: Case study Iran and Indonesia. Journal of Economic Cooperation & Development, 33(4).
Abduh, M. & Chowdhury, N. T. (2012). Does Islamic banking matter for economic growth in Bangladesh. Journal of Islamic Economics, Banking and Finance, 8(3), 104–113.
Abu‐Bader, S., & Abu‐Qarn, A. S. (2008). Financial development and economic growth: empirical evidence from six MENA countries. Review of Development Economics, 12(4), 803–817.
Ahmad, N., Daud, S. N. M. & Kefeli, Z. (2012). Economic forces and the sukuk market. Procedia-Social and Behavioral Sciences, 65, 127–133.
Ascarya, A. (2014). Monetary policy transmission mechanism under dual financial system in Indonesia: Interest-profit channel. International Journal of Economics, Management and Accounting, 22(1), 1–32.
Askari, H. & Rehman, S. (2013). A survey of the economic development of OIC countries. Economic Development and Islamic Finance, 299.
Beck, T., Levine, R. & Loayza, N. (2000). Finance and the Sources of growth. Journal of Financial Economics, 58(1–2), 261–300.
Beck, T. & Levine, R. (2004). Stock markets, banks, and growth: Panel evidence. Journal of Banking & Finance, 28(3), 423–442.
Coşkun, Y., Seven, Ü., Ertuğrul, H. M., & Ulussever, T. (2017). Capital market and economic growth nexus: Evidence from Turkey. Central Bank Review, 17(1), 19–29.
DinarStandard. (2022). State of the Global Islamic Economy Report 2022 [online]. [accessed 2023 Jan 19]. Retrieved from: https://cdn.salaamgateway.com/reports/pdf/State+of+the+Global+Islamic+Economy+Report+2022_V2_Updated.pdf.
Direktorat Jenderal Pembiayaan dan Pengelolaan Risiko (DJPPR) Kementerian Keuangan. (2022). Data Penerbitan Surat Berharga Negara Syariah (Sukuk) [online]. [accessed 2023 Jan 29]. Retrieved from: https://www.djppr.kemenkeu.go.id/.
Ghozali, I. (2006). Aplikasi Analisis Multivariate dengan Program SPSS. Semarang (ID), Badan Penerbit Universitas Diponegoro.
Gujarati, D. N. (2012). Dasar-Dasar Ekoenometrika. Jakarta (ID), Salemba Empat.
Hassan, M. K., Hossain, S. & Ahmed, H. (2022). Impact of Islamic finance on economic growth. Journal of Economic Cooperation & Development, 43(2), 101–128.
Imam, P. & Kpodar, K. (2016). Islamic banking: good for growth? Economic Modelling, 59, 387–401.
Iskandar, A. (2014). Pengaruh penerbitan sukuk negara sebagai pembiayaan defisit fiskal dan kondisi ekonomi makro terhadap perkembangan perbankan syariah di Indonesia. Jurnal of Info Artha Sekolah Tinggi Akuntansi Negara (STAN), 1–21.
Iskandar, A. & Aqbar, K. (2019). Kedudukan ilmu ekonomi Islam di antara ilmu ekonomi dan fikih muamalah: Analisis problematika epistemologis. NUKHBATUL’ULUM: Jurnal Bidang Kajian Islam, 5(2), 88–105.
Kasri, R. & Ahmed, H. (2015). Assessing socio-economic development based on Maqāṣid al-Sharīʿah principles: Normative frameworks, methods and implementation in Indonesia. Islamic Economic Studies, 23(1), 73–100.
Kassim, S. (2016). Islamic finance and economic growth: The Malaysian experience. Global Finance Journal, 30, 66–76.
Khoutem, B. J., & Nedra, B. A. (2012). Islamic participative financial intermediation and economic growth. Journal of Islamic Economics, Banking and Finance, 3(8), 44–59.
King, R. G. & Levine, R. (1993). Finance and growth: Schumpeter might be right. The Quarterly Journal of Economics, 108(3), 717–737.
Ledhem, M. A. & Mekidiche, M. (2022). Islamic securities (ṣukūk) and economic growth: New empirical investigation from Southeast Asia using non-parametric analysis of MCMC panel quantile regression. Islamic Economic Studies, 29(2), 119–138.
Levine, R. (2005). Finance and growth: Theory and evidence. Handbook of Economic Growth, 1, 865–934.
Majid, M. S. A & Kassim, S. (2015). Assessing the contribution of Islamic finance to economic growth: Empirical evidence from Malaysia. Journal of Islamic Accounting and Business Research, 6(2), 292–310.
Mankiw, N. G. (2008). Principles of Macroeconomics. Edinburgh (UK), Thomson Nelson.
McKinnon, R. I. (2010). Money and Capital in Economic Development. Washington D.C (US), Brookings Institution Press.
Mitsaliyandito, R. Q., Arundina, T. & Kasri, R. A. (2017). Impact of sukuk market development on Indonesian economic growth. International Journal of Applied Business and Economic Research, 15(24), 537–549.
Nachrowi, D. N. & Usman, H. (2006). Ekonometrika: Pendekatan Populer dan Praktis Untuk Analisis Ekonomi dan Keuangan. Jakarta (ID), LPFE UI.
Naz, S. A. & Gulzar, S. (2022). Impact of Islamic finance on economic growth: An empirical analysis of Muslim countries. The Singapore Economic Review, 67(01), 245–265.
Nurzianti, R. (2021). Revolusi lembaga keuangan syariah dalam teknologi dan kolaborasi fintech. Jurnal Inovasi Penelitian, 2(1), 37–46.
Nzotta, S. M. & Okereke, E. J. (2009). Financial deepening and economic development of Nigeria: An empirical investigation. African Journal of Accounting, Economics, Finance and Banking Research, 5(5).
[OJK] Otoritas Jasa Keuangan. (2022). Statistik Perbankan Syariah Indonesia. [online]. [accessed 2023 Mar 19]. Retrieved from: https://www.ojk.go.id/.
[OJK] Otoritas Jasa Keuangan (OJK). (2023a). Data Obligasi Syariah (Sukuk). [online]. [accessed 2023 Nov 25]. Retrieved from: https://ojk.go.id/id/kanal/syariah/data-dan-statistik/data-produk-obligasi-syariah/default.aspx.
[OJK] Otoritas Jasa Keuangan (OJK). (2023b). Laporan Perkembangan Keuangan Syariah Indonesia 2022. [online]. [accessed 2023 Nov 25]. Retrieved from: https://ojk.go.id/id/berita-dan-kegiatan/info-terkini/Documents/Pages/OJK-Luncurkan-Buku-Laporan-Perkembangan-Keuangan-Syariah-Indonesia-%28LPKSI%29-2022/Laporan%20Perkembangan%20Keuangan%20Syariah%20Indonesia%20%28LPKSI%29%202022.pdf.
Pradhan, R. P., Arvin, M. B., Bennett, S. E., Nair, M., & Hall, J. H. (2016). Bond market development, economic growth and other macroeconomic determinants: Panel VAR evidence. Asia-Pacific Financial Markets, 23, 175–201.
Refinitiv. (2022). Islamic Finance Development Report 2022: Advancing Economies [online]. [accessed 2023 Jul 08]. Retrieved from: https://www.refinitiv.com/en/resources/special-report/islamic-finance-development-report-2022.
Republik Indonesia. (2023). Buku II: Nota Keuangan Anggaran Pendapatan Dan Belanja Negara Tahun Anggaran 2023 [online]. [accessed 2023 Nov 25]. Retrieved from: https://media.kemenkeu.go.id/getmedia/4d726514-8416-47db-ab51-49506bbcdaaa/Buku-II-Nota-Keuangan-APBN-2023.pdf?ext=.pdf.
Sabiu, T. T. & Abduh, M. (2020). Islamic financial development and economic growth in Nigeria: a bounds testing approach. Journal of Islamic Monetary Economics and Finance, 6(3), 597–620.
Sakinah, G., Kasri, R. A., & Nurkholis, N. (2022). Islamic finance and Indonesia’s economy: An empirical analysis. Jurnal Ekonomi & Keuangan Islam, 47–59.
Samargandi, N., Fidrmuc, J., & Ghosh, S. (2015). Is the relationship between financial development and economic growth monotonic? Evidence from a sample of middle-income countries. World Development, 68, 66–81.
Santoso, S. (2016). Panduan lengkap SPSS versi 23. Jakarta (ID), Elex Media Komputindo.
Sari, N., Syamsurijal, A. K., & Widiyanti, M. (2018). The impact of Islamic capital market development on economic growth: The case of Indonesia. Journal of Smart Economic Growth, 3(2), 21–30.
Schumpeter, J., Becker, M. C., & Knudsen, T. (2002). New translations: Theorie der wirtschaftlichen Entwicklung. The American Journal of Economics and Sociology, 61(2), 405–437.
Setiawan, I. (2019). The role of Islamic banking in the development of economic sectors in Indonesia. International Journal of Applied Business Research, 88–99.
Setiawan, I., Kassim, S., Gudarzi Farahani, Y., Dastan, M., Abduh, M., Chowdhury, N. T., Yazdan, G. F., Mohammad Hossein, S. S., Sabiu, T. T., & Abduh, M. (2012). The role of Islamic banking in the development of economic sectors in Indonesia. Journal of Economic Cooperation & Development, 6(3), 66–76.
Shahbaz, M. & Islam, F. (2011). Financial development and income inequality in Pakistan: an application of ARDL approach. Munich Personal RePEc Archive, 1-20.
The World Bank. (2023). Economy Indicators Data of Indonesia [online]. [accessed 2023 Jun 06]. Retrieved from: https://data.worldbank.org/country/ID.
Thumrongvit, P., Kim, Y., & Pyun, C. S. (2013). Linking the missing market: The effect of bond markets on economic growth. International Review of Economics & Finance, 27, 529–541.
Timmer, P. & McCelland, D. (2004). Economic Growth in the Muslim World: How Can USAID Help?. Bureau of Policy and Program Coordination.
Wahid, S. (2002). Jalan Pintas Menguasai SPSS. Yogyakarta (ID), Penerbit Andi.
Yadirichukwu, E. & Chigbu, E. E. (2014). The impact of capital market on economic growth: The Nigerian perspective. International Journal of Development and Sustainability, 3(4), 838–864.
Yazdan, G. F. & Sadr, S. M. H. (2012). Analysis of Islamic bank’s financing and economic growth: Case study Iran and Indonesia. Journal of Economic Cooperation & Development, 33(4).