Does Sukuk financing boost economic growth? Empirical evidence from Southeast Asia

Abstract

Purpose – This paper aims to investigate empirically whether Sukuk financing is boosting the economic growth in Southeast Asia within the framework of the endogenous growth model. Design/methodology/approach – This paper applied dynamic panel one-step system generalized method of moments as an optimal estimation approach to investigate the impact of Sukuk financing on economic growth in Southeast Asia spanning from 2013Q4–2019Q3. Sukuk financing was proxied by the total issued Sukuk holdings, while economic growth was proxied by gross domestic product. The sample covered all full-fledged Islamic financial institutions in the most developed Sukuk financial markets countries in Southeast Asia (Malaysia, Indonesia and Brunei). Findings – The findings demonstrated that Sukuk financing is boosting economic growth in Southeast Asia, which reflects the significant role of the Islamic financial markets of Sukuk as a vital contributor to economic growth. Practical implications – This paper would fill the literature by investigating the link between Sukuk financing and economic growth in Southeast Asia within the framework of the endogenous growth model, as the outcome of this paper serves as a guide for financial researchers, decision-makers and policymakers to improve the Sukuk market globally as an alternative financing source for the best contribution to economic growth. Originality/value – This paper is the first that investigates empirically the link between Sukuk financing and economic growth in Southeast Asia with a new theoretical context of the endogenous growth model to gain robust information about this link.

Keywords

• Economic growth
• Dynamic panel one-step system GMM
• Endogenous growth model
• Islamic financial markets
• Sukuk financing