Does Islamic Financing Drive Growth? Dynamic Evidence from Working Capital, Investment, and Consumer Financing in Indonesia
DOI:
https://doi.org/10.59944/jipsi.v5i3.1618Keywords:
Islamic bank financing; working capital; investment; consumption; economic growth; dynamic quantile regressionAbstract
This study examines the dynamic relationship between purpose-based Islamic bank financing and quarter-to-quarter changes in Indonesia’s economic growth rate (ΔGrowth). Financing is classified into working capital, investment, and consumer financing. The dataset comprises 64 quarterly observations from 2010Q1 to 2025Q4, with 60 effective observations after first differencing and the inclusion of three autoregressive lags of ΔGrowth. A dynamic median quantile regression controls for changes in the interest rate and inflation, as well as COVID-19 regime and pulse interventions. Statistical inference is based on 600 moving-block bootstrap replications with a four-quarter block length. None of the three financing categories is statistically associated with the conditional median of ΔGrowth when estimated separately. In the combined model, investment financing has a negative coefficient, whereas working capital and consumer financing remain insignificant. However, investment financing is insignificant in the separate model, indicating that the combined-model result is sensitive to model specification and does not support a causal interpretation. Lagged changes in the growth rate and pandemic interventions are the most consistent correlates of short-run growth dynamics. Overall, the evidence does not show a consistent same-quarter association between increases in nominal purpose-based Islamic financing and an acceleration in economic growth. These findings suggest that Islamic banking development should emphasize not only financing expansion but also allocation quality and sectoral linkages.
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