Islamic financial depth, inflation, interest rates, and economic growth in Saudi Arabia: An application of vector autoregression model
-
Author(s)Ibrahim Abiodun OladapoLink to ORCID Index: https://orcid.org/0000-0001-9931-7718
,
Yusuf Opeyemi Akinwale
-
DOIhttp://dx.doi.org/10.21511/bbs.19(4).2024.03
-
Article InfoVolume 19 2024, Issue #4, pp. 34-43
- 11 Views
-
3 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
This study investigates the short-run dynamics among Islamic financial depth, interest rates, inflation, and their impact on Saudi Arabian economic output using quarterly information spanning 2017–2023. The study employed a vector autoregressive model due to the non-cointegrated nature of the variables. Results indicate positive short-run relationships between the current GDP per capita and its lagged value, and between economic growth and inflation. Conversely, interest rates demonstrated a negative short-run relationship with economic growth, while Islamic financial depth showed a positive but lagged impact. Wald tests confirmed short-run causality from inflation, interest rates, and Islamic financial depth to GDP. These findings suggest that keeping inflation in check with good central bank policies is important for stable markets and a growing economy. Furthermore, the size of the Islamic finance sector in Saudi Arabia seems to boost the country’s economy. The findings provide useful information for Saudi Arabian decision-makers in government and Islamic financial institutions.
- Keywords
-
JEL Classification (Paper profile tab)E44, E52, G21
-
References35
-
Tables7
-
Figures0
-
- Table 1. Definition of variables
- Table 2. Unit root test
- Table 3. Johansen cointegration test
- Table 4. Statistical criteria for VAR lag order selection
- Table 5. Short-run effects
- Table 6. Wald test
- Table 7. Diagnostic tests
-
- Adabor, O. (2022). Exploring the asymmetric effect of lending rate on economic growth in Ghana: Evidence from nonlinear autoregressive distributed lag model. Cogent Business & Management, 9(1), 1-22.
- Adegoke, T. D., Azeez, B. A., Ogiamien, F. O., & Osasona, V. A. (2021). The Relationship between Interest Rate and Economic Growth in Nigeria: ARDL Approach. International Journal of Research and Innovation in Social Science, 5(7), 350-355.
- Akaike, H. (1974). A new look at the statistical model identification. IEEE Transactions on Automatic Control, 19(6), 716-723.
- Alkhawaldeh, B. Y., Mahmood, S., & Jakada, A. H. (2020). An Empirical Assessment of the Effect of Taxes and Interest Rate on Economic Growth in Jordan: An Application of Dynamic Autoregressive-Distributed Lag. Research in World Economy, 11(3), 92-98.
- Anwar, S. M., Junaidi, J., Salju, S., Wicaksono, R., & Mispiyanti, M. (2020). Islamic bank contribution to Indonesian economic growth, International Journal of Islamic and Middle Eastern Finance and Management, 13(3), 519-532.
- Atigala, P., Maduwanthi, T., Gunathilake, V., Sathsarani, S., & Jayathilaka, R. (2022). Driving the pulse of the economy or the dilution effect: Inflation impacting economic growth. PLoS ONE, 17(8), e0273379.
- Boukhatem, J., & Ben Moussa, F. (2018). The effect of Islamic banks on GDP growth: some evidence from selected MENA countries. Borsa Istanbul Review, 18(3), 231-247.
- Cheng, M., Chung, L., Tam, C., Yuen, R., Chan, S., & Yu, I. (2012). Tracking the Hong Kong Economy (Occasional Paper 03/2012). Hong Kong Monetary Authority.
- Demirgüç-Kunt, A., & Levine, R. (2008). Finance, Financial Sector Policies, and Long-Run Growth (Policy Research Working Paper No. 4469). The World Bank.
- Faisal, F., Turgut, T., & Niyazi, B. (2018). Linear and non-linear impact of Internet usage and financial deepening on electricity consumption for Turkey: Empirical evidence from asymmetric causality. Environmental Science and Pollution Research, 25, 11536-11555.
- Gatawa, N. M., Abdulgafar, A., & Olarinde, M. O. (2017). Impact of Money Supply and Inflation on Economic Growth in Nigeria (1973–2013). IOSR Journal of Economics and Finance, 8(3), 26-37.
- Hachicha, N., & Ben Amar, A. (2015). Does Islamic bank financing contribute to economic growth? The Malaysian case. International Journal of Islamic and Middle Eastern Finance and Management, 8(3), 349-368.
- Hussain, S., Ur Rehman, A., Ullah, S., Waheed, A., & Hassan, S. (2024). Financial Inclusion and Economic Growth: Comparative Panel Evidence from Developed and Developing Asian Countries. Sage Open, 14(1), 1-15.
- Issie, F. M. (2023). Does Inflation Contribute to Economic Growth: The Case of CEMAC (Central African Economic and Monetary Community). JIET (Jurnal Ilmu Ekonomi Terapan), 8(1), 81-93.
- Khan, M. A. (2002). Restructuring of Financial Sector in Pakistan (MPRA Paper No. 3921). University Library of Munich, Germany.
- Khan, M. A., & Khan, S. (2018). Inflation and Economic growth: Evidence from Five Asian Countries. Pakistan Journal of Applied Economics, 28(2), 235-252.
- Kiley, M. T. (2014). The Aggregate Demand Effects of Short- and Long-Term Interest Rates. International Journal of Central Banking, 10(4), 69-104.
- Kunkuaboor, Y. C., Adamu, M., Sommik-Duut, M., & Abdul-Seidu, F. (2021). The effect of inflation on economic growth in Ghana, 1995–2019: Post democratic analysis. World Journal of Advanced Research and Reviews, 12(03), 230-242.
- Lee, K. S., & Werner, R. A. (2022). Are lower interest rates really associated with higher growth? New empirical evidence on the interest rate thesis from 19 countries. International Journal of Finance & Economics, 28(4), 3960-3975.
- Luyanda, M., Mpungose, S., & Msomi, S. (2024). Econometric Analysis of South Africa’s Fiscal and Monetary Policy Effects on Economic Growth from 1980 to 2022. Economies, 12(9), 1-24.
- Mabeba, M. (2024). The Effect of Financial Market Depth on Economic Growth in Developing Countries with Large Financial Sectors. Social Science Studies, 4(2), 66-81.
- Mackinnon, A., Jorm, A. F., Christensen, H., Korten, A. E., Jacomb, P. A., & Rodgers, B. (1999). A short form of the Positive and Negative Affect Schedule: Evaluation of factorial validity and invariance across demographic variables in a community sample. Personality and Individual Differences, 27(3), 405-416.
- MacKinnon, J.G. (1996). Numerical Distribution Functions for Unit Root and Cointegration Tests. Journal of Applied Econometrics, 11(6), 601-618.
- Malec, K., Maitah, M., Rojik, S., Aragaw, A., & Fulneˇckova, P.R. (2024). Inflation, exchange rate, and economic growth in Ethiopia: A time series analysis. International Review of Economics and Finance, 96(A), 1-14.
- Manamperi, N. (2013). The Short and Long-run Dynamics between Inflation and Economic Growth in BRICS. Applied Economics Letters, 21(2),140-145.
- Mukoka, S. (2018). An Econometric Assessment of the Impact of Inflation on Economic Growth: A Case Study of Zimbabwe Economy. Science Publishing Group, 7(1), 17-22.
- Mushtaq, S., & Siddiqui, D. A. (2016). Effect of interest rate on economic performance: evidence from Islamic and non-Islamic economies. Financial Innovation, 2(9), 1-14.
- Njie, M., & Badjie, M. (2021). The effects of interest rate on economic growth: Further insights from the Gambia. Journal of Economics and International Finance, 13(2), 100-105.
- Phillips, P. C., & Hansen, B. E. (1990). Statistical Inference in Instrumental Variables Regression with I(1) Processes. The Review of Economic Studies, 57(1), 99-125.
- Phillips, P. C., & Ouliaris, S. (1990). Asymptotic Properties of Residual Based Tests for Cointegration. Econometrica, 58(1), 165-193.
- Said, E., & Dickey, D. A. I. (1984). Testing for Unit Roots in Autoregressive-Moving Average Models of Unknown Order. Biometrika, 71(3), 599-607.
- Saleem, A., Sági, J., & Setiawan, B. (2021). Islamic financial depth, financial intermediation, and sustainable economic growth: ARDL approach. Economies, 9(2), 1-22.
- Sepehri, A., & Moshiri, S. (2004). Inflation-Growth Profiles Across Countries: Evidence from Developing and Developed Countries. International Review of Applied Economics, 18(2), 191-207.
- Su, S. K. W., & Soon, S. V. (2024). The impact of inflation on economic growth. Issues and Perspectives in Business and Social Sciences, 4(2), 187-201.
- Yüksel, S., & Canöz, I. (2017). Does Islamic banking contribute to economic growth and industrial development in Turkey? Ikonomika, 2(1), 93-102.
-
Impact on poverty and income inequality in Malaysia’s economic growth
Rabiul Islam ,
Ahmad Bashawir Abdul Ghani ,
Irwanshah Zainal Abidin ,
Jeya Malar Rayaiappan
doi: http://dx.doi.org/10.21511/ppm.15(1).2017.05
Problems and Perspectives in Management Volume 15, 2017 Issue #1 pp. 55-62 Views: 11919 Downloads: 5693 TO CITE АНОТАЦІЯPoverty and income inequality are extreme issues that still exist in Malaysia. Any rise in poverty and income inequality definitely affect economic growth. There are many great efforts taken by the government of Malaysia to eradicate poverty and to reduce the gap of income inequality which occurs since 1970’s. The incidence of poverty and income inequality is higher in rural areas compared to urban areas. This paper is mainly to study the level of poverty and income inequality in Malaysia together with government intervention to develop Malaysia’s economic growth. The research is focused among the working people at Ipoh, Perak. In this paper, questionnaire forms are being distributed to get information regarding the issue of poverty and income inequality. It also looks into the strategies taken by the government of Malaysia to eradicate poverty and income inequality. Few recommendations are given in terms of education policy, financial aid and assistance from government and non-government organization (NGO) to upgrade the standard and quality of living among the poor and lower-income group of people.
-
Impact of inflation on economic growth: evidence from Nigeria
Anthony Olugbenga Adaramola ,
Oluwabunmi Dada
doi: http://dx.doi.org/10.21511/imfi.17(2).2020.01
Investment Management and Financial Innovations Volume 17, 2020 Issue #2 pp. 1-13 Views: 9148 Downloads: 5478 TO CITE АНОТАЦІЯIn an attempt to examine the influence of inflation on the growth prospects of the Nigerian economy, the study employs the autoregressive distributed lag on the selected variables, i.e. real gross domestic product (GDP), inflation rate, interest rate, exchange rate, degree of economy`s openness, money supply, and government consumption expenditures for the period 1980–2018. The study findings indicate that inflation and real exchange rate exert a significant negative impact on economic growth, while interest rate and money supply indicate a positive and significant impact on economic growth. Other variables in the model depict no influence on the economic growth of Nigeria. The causality result shows the unidirectional relationships between interest rate, exchange rate, government consumption expenditures and gross domestic product. However, inflation and the degree of openness show no causal relationship with gross domestic product. As a result, the study recommends that a more pragmatic effort is needed by the monetary authorities to target the inflation vigorously to prevent its adverse effect by ensuring a tolerable rate that would stimulate the economic growth of Nigeria.
-
Formalization of the impact of imbalances in the movement of financial resources on economic growth of countries in Central and Eastern Europe
Serhiy Kozmenko ,
Maxim Korneyev
doi: http://dx.doi.org/10.21511/afc.01(1).2017.06
Accounting and Financial Control Volume 1, 2017 Issue #1 pp. 48-58 Views: 7878 Downloads: 1375 TO CITEThe article deals with the impact of financialization on economic growth in countries of Central and Eastern Europe. It determinesthe impact of imbalances in the movement of financial resources caused by financialization on economic growth of these countries. It proves that the implementation of measures aimed at increasing the openness of the economy and maintaining solvent demand have a positive impact on economic growth of the surveyed countries in the long run. It also proves the importance of developing a set of measures of strategic nature regulating imbalances in the movement of financial resources caused by financialization.
