ISLAMIC BANKING AND ECONOMIC GROWTH
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Date
2015
Authors
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Publisher
UMT,Lahore
Abstract
Islamic banking in Pakistan has gained recognition, in last ten to eleven years. There are
many products which are different from conventional banking and the most significant element
is zero interest. Currently, a large no of people have motivation towards Islamic banking
compared to conventional banking especially in the view of growth in its assets,investment and
deposit. The increasing number of Islamic banking institutes indicates an increasing trend of
Islamic banking in Pakistan. People are trusting on this mode of banking due to which the
number of Islamic banking institutes is increasing and different conventional banks are opening
Islamic banking branches to cater the increasing demands of people of Pakistan. Extensive work
has been done in evaluating the connection between the financial sector and development,
however research work regarding the Islamic banking framework is still insufficient .The
present study is unique as it investigates the short run and the long run relationship between
Islamic financial investment, its diverse items and financial development, especially in Pakistan
.For the analysis we have utilized the bound testing methodology of integration and error
correction models (ECMs), developed within an autoregressive distributed lag (ARDL) structure
by Pesaran and Shin (1995), Pesaranet al. (1996) and Narayan (2004). Using quarterly data for
the period of 2006-2013 it is found that there is a supply side relation between economic growth
and Islamic banking in Pakistan and Islamic banking industry exerts significant impact on
economic growth