The effect of Islamic Banking and Macroeconomic Variables on Economic Growth: A comparative study of Pakistan

Abstract

The investigation of influence of macroeconomic variables on economic growth remained hot
issue for decades. And nowadays increasing importance of Islamic banking and finance
industry in Pakistan and its tremendous role in global financial sector has also called for an
examining of contribution of Islamic finance in economic growth of Pakistan. This study also
compared result of both variables in order to show whether Islamic banking showing great
progress or not. So, in order to investigate impact of Islamic finance and macroeconomic
variables on economic growth this study used quarterly data from 2009-16 and applies bound
testing cointegration technique made within in “Autoregressive distributed lag model”. The
result shows that both variables have an influence on economic growth in short run as well as
in long run. By comparison of both variables it is shown that Islamic banking possess great
potential of growth. So, government may need to refine its legal and regulatory framework in
order to increase its impact on economy up to many folds