Title: Islamic banking and economic growth: the Kuwait experience

Authors: Dhekra Azouzi; Abdelghani Echchabi

Addresses: Faculty of Management Sciences and Economics, Department of Finance, El-Manar University, El-Manar 1, Tunisia ' Faculty of Economics and Management Sciences, Department of Business Administration, International Islamic University Malaysia, JalanGombak, Kuala Lumpur, 53100, Malaysia

Abstract: Islamic banking witnesses presently a great success and the number of Islamic banks is rapidly increasing worldwide. This Shari'ah compliant banking is expected to alleviate the effects of financial crises and to enhance economic growth. This paper focuses on the relationship between Islamic banking development and economic growth in Kuwait from Q1: 2004 to Q4: 2011 using co-integration, vector error correction model (VECM) and Granger causality tests. This study reveals that a negative and insignificant long-run relationship does exist between Islamic banking development and economic growth in Kuwait. However, no short-run causality was highlighted between Islamic banks financing and economic growth. Such results can be attributed to the general macroeconomic deterioration and to the global banking sector's declining profitability during the period of study.

Keywords: Islamic banking; economic growth; Kuwait; Granger causality; co-integration; vector error correction model; VECM; Islam; Islamic finance.

DOI: 10.1504/MEJM.2013.057262

Middle East Journal of Management, 2013 Vol.1 No.2, pp.186 - 195

Available online: 18 Oct 2013 *

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