Islamic Finance and Economic Growth: Evidence from Indonesia experience
Masrizal (a*), Sri Herianingrum (b), Imron Mawardi (b), Irham Zaki (b)
a) Master Candidate Of Islamic Economic, Faculty Of Economic and Business, Airlangga University, Surabaya, Indonesia
*masrizal-2017[at]pasca.unair.ac.id
b) Depertment Of Islamic Economic, Faculty Of Economic and Business, Airlangga University, Surabaya, Indonesia
Abstract
The economic system requires smoothness and balance between sectors, such as the real sector and finance. The real sector requires funds from the financial sector as a source of financing in the framework of the production process. This study examines the Islamic finance sector on economic growth in Indonesia. This study uses monthly data from January 2003 to July 2018. This study is a quantitative study that applies the Johansen Cointegration Test and Vector Error Correction Model to see the long-term impacts and shocks responses on certain variables. The findings indicate the existence of short-term and long-term causality between Islamic financial variables and economic growth. The VECM estimation shows that in particular in the long run, the DPK and INF are negatively related to IPI, while PMB and JII are positively related. In the short term, INF has a significant effect on IPI. The IPI response to shocks that occur in DPK, PMB, JII dan INF was negative.
Keywords: Islamic banking; Islamic finance; Economic growt; VECM; Indonesia
Topic: Social and Economic Issues