SECTORAL ANALYSIS ON THE IMPACT OF ISLAMIC BANKS TO THE MALAYSIAN ECONOMY
Malaysia is a well-known Islamic finance hub with a growing trend in its Islamic financial assets. The growth of the Malaysian economy since its independence has also been commendable, with a rising contribution from Islamic banking and finance. This study offers a different perspective by examining the sectoral analysis on the impact of Islamic banks in Malaysia. It aims to fill the gap in the literature by investigating how the Islamic Bank financing (IBF) affects the economic growth in Malaysia, in overall and sectoral level. There are three sectors observed in this study: agriculture, industry and services. Both the long-run and short- run analysis is undertaken for the data period covering from 2007Q1 to 2018Q4. The Autoregressive Distributed Lag (ARDL) method is utilized where IBF is found to be significantly and positively affecting the economic growth of Malaysia, at the overall and sectoral level. Nonetheless, there is a negative relationship in the agriculture sector and no cointegration in the industry sector. The result of this study is expected to provide some insights for the policymakers in encouraging more optimal Islamic financing to economic sectors in Malaysia.
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