AN EMPIRICAL EVALUATION OF THE IMPACT OF ISLAMIC FINANCING ON ECONOMIC GROWTH IN SAUDI ARABIA

Abstract

This work has empirically investigated the relationship between the Islamic banking and its contribution to economic growth in the Kingdom of Saudi Arabia (KSA).  This work has examined role of Islamic banks financing in Saudi Arabia to stimulate economic growth by affecting the gross domestic product, gross fixed capital formation, foreign direct investment, employment, and trade volumes. This study has utilized the annual time series data from 1990 - 2015 for the macroeconomic variables and data pertaining to Islamic financing for analysis. This study has employed the autoregressive distributed lag (ARDL) approach to examine the empirical relationship between the selected variables. The outcome of this work has identified that Islamic bank financing positively affects the macro economy of Saudi Arabia as gross domestic product, gross fixed capital formation, foreign direct investment and trade volumes demonstrate a positive and significant relationship with Islamic bank financing. Furthermore, results showed a negative and significant relationship between the Islamic banks financing and employment.  Thus, it is concluded that Islamic banking has positive effects on economic growth