Relationship between financial development including Islamic loans and economic growth

Abstract

Purpose - The purpose of this study was to investigate empirically whether financial development including Islamic loans leads to economic growth Design/methodology/approach - This study covered 13 countries form the MENA region during the period of 2001-2015. Multiple Fixed effect models were used on a balanced panel to check the impact of financial development variables on the GDP per capita. Findings - Conventional loans and Islamic loans have significant positive relationship with economic growth. While bank asset concentration, stock market total traded value, stock market capitalization and non- performing loans have a significant negative relationship with economic growth. On another note, we concluded that the economic freedom index and the return on equity are not significant. Research limitations/implications - The data of Islamic loans was not available through secondary data. Hence we were obliged to collect primary data and the collection of data took a lot of our time and we are obliged to present this study within a specific time, thus we were not able to do further analysis on the components of loans. Practical implications -- The stock markets playing a minor role in financing the private sector must be improved to allow more accessibility for financing. However, from another hand, regulators must adopt strict regulations to control the volatility of prices in the market. Moreover, banks in MENA having a high exposure to the public sector must increase their credits to the private sector, whether through conventional loans or Islamic loans in order to boost the economy Originality/value - Provides a comprehensive study on financial development and especially Islamic loans. It also fills a gap in the empirical studies related to the MENA region.