Sukuk and Endogenous Growth in Indonesia: Generalized Method of Moments Approach

Abstract

This research analyzes the effect of sukuk and several financial instruments (stocks and bonds) on economic growth in Indonesia. The data is quarterly time series started from 2002 till 2017 using Generalized Method of Moments (GMM) analysis model. This model has ability to produce unbiased, consistent and efficient estimation even though in the model, endogenous variables and measurement error variables are existed. The results show that sukuk and bonds have positive and significantly affect (α <0.05) on economic growth (Gross Domestic Income per worker), but stocks and savings have negative and significantly effect on economic growth. Through these results, we know that economic growth in Indonesia effected by capital flow, and by supporting the number of Muslim populations in Indonesia, policy makers and stockholders (governments and corporate) could take these advantages promoting these instruments especially sukuk as means of funding for their business activities and developing purposes while keeping the performances and public trust on their instruments, furthermore governments and corporate could get fund for their business activities and developing purposes. Keywords— Sukuk; Financial Instruments; Endogenous Growth; GMM