Finance-Growth Nexus : The Relationship Between Islamic Finance And Economic Growth In Malaysia And Indonesia

Bong, Shiang Huei (2014) Finance-Growth Nexus : The Relationship Between Islamic Finance And Economic Growth In Malaysia And Indonesia. [Final Year Project Report] (Unpublished)

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Abstract

This objective of this study is to investigate the relationship between Islamic financial development and economic growth in Malaysia and Indonesia during the period of December 2006 until October 2011. Utilizing monthly data, this study employs the descriptive statistics, correlation analysis, Augmented Dickey-Fuller (ADF) and Philip-Perron (PP) unit root tests, Johansen-Juselius Cointegration Test, and Granger Cauality Test to examine the long-run and short-run relationship between the economic growth and financial development in both countries. The results demonstrate that there is a cointegrating long-run relationship between Islamic financial development and economic growth in both Malaysia and Indonesia. However, in the short-run, there is no causal relationship between Islamic financial development and economic growth in Malaysia but there is empirical evidence that there is a bi-directional causal relationship between Islamic financial development and economic growth in Indonesia. To some extent, this study concludes that Islamic financing has a crucial and significant role in spurring the economic growth.

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