Abstract
Due to the inherent instability of the conventional financial system, the demand
for Islamic finance has increased. Islamic finance is more stable because it does
not rely on debt-based financing. Currently, Islamic finance is one of the fastest
growing sectors of economy in the Muslim world in general and in Pakistan in
particular and it plays a vital role in the real sector development. This paper
investigated the impact of Islamic viz a viz conventional finance on economic
growth of Pakistan. For empirical analysis, quarterly data for the period 2006Q3–
2017Q4 was utilized. For Islamic finance, the study used total financing (finance
plus investment) by Islamic banks, whereas credit given to the private sector by
conventional banks was used as the measure of conventional finance. Using
GMM method of estimation, our findings revealed that Islamic finance enhances
economic growth and also fulfills some specific needs of economic agents which
otherwise would have remained unfulfilled by conventional finance. Further, the
study also used government spending, investment, trade openness and inflation as
control variables.
Malik Muhammad, Dr. Atiquzzafar Khan, Hafiz Abdur Rehman. (2019) Islamic Finance and Economic Growth: The Case of Pakistan’s Economy, Islamic Banking and Finance Review, Volume 6, Issue 1.
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