Nexus Between Foreign Direct Investment, Islamic Financial Performance and Economic Growth with Economic Freedom as Moderating Variable

Abstract

This study aims to analyze the relationship of the FDI in developing the Islamic economy through the performance of Islamic finance and the impact on economic freedom in IFSB member states. The study was analyzed with PLS-SEM using PLS 3.0. The findings show that FDI has no significant relationship with Islamic economic growth, and financial freedom does not modulate the relationship between FDI and Islamic economic development. Sharia economic development is hampered by economic freedom, so FDI is not a factor that can advance the Sharia economy. The research results implicate that Islamic countries should utilize FDI to overcome the limitations of sources of funds in developing the Islamic economy. On the other hand, Islamic countries are working with foreign investors to expand investment in Islamic economic-based sectors through more competitive halal investment schemes. The expansion of halal investment access for investors is expected to accelerate the inflow of foreign direct investment. Through this study, the government could establish an Islamic economic framework without relying on secular economic activities and highlight the resources that Islam allows to attract foreign investors to make halal investments to grow the economy of Islamic countries to a more advanced level.

Keywords

• Foreign Direct Investment
• Islamic Financial Performance
• Economic Growth
• Economic Freedom