The impact of Sukuk financing on economic growth: the case of GCC countries

Abstract

Islamic finance has been presenting itself for many decades as a viable alternative/complementary system to the long existing conventional financial system. However, recent research has claimed that Islamic finance as it is currently practised does not effectively promote economic growth. Hence, the objective of this study is to empirically examine the potential effect of Islamic finance in the specific form of Sukuk issuance on the economic growth represented by three proxies, namely Gross Domestic Product (GDP), Gross Capital Formation (GCF) and trade activities. The data were collected from the Islamic Finance Information Services (IFIS) and the World Bank databases, and were subsequently analysed through Toda and Yamamoto Granger Non-Causality test. Accordingly, the findings indicated that the Sukuk financing had no influence on economic growth for GCC countries. This finding has significant implications that are discussed in detail in the final section.