Abstract
Islamic banking in Pakistan has gained recognition in last ten to eleven years. It
offers many products which are different from conventional banking and the most
significant constituent is zero interest. Currently, a chunk of people have motivation
towards Islamic banking compared to conventional banking in view of its growth in
terms of assets, investment and deposits. This growing number of Islamic banking
institutes indicates an increased trend of Islamic banking in Pakistan. People’s trust
on the legitimacy of Islamic mode of banking motivates different conventional
banks to open Islamic windows besides full-fledged Islamic branches to cater the
increasing demand of people in Pakistan. The present study investigates short run
and long run relationship between Islamic finance development, its various products
and economic growth in Pakistan. Using quarterly data for the period of 2006-2013,
the study applied bound cointegration test and error correction models (ECMs)
developed within an autoregressive distributed lag (ARDL) structure. The study
found that there is a supply side relation between economic growth and Islamic
banking in Pakistan. The study also found that Islamic banking industry exerts
significant impact on economic growth.
Rukhsana Kalim, Noman Arshed, Afia Mushtaq. (2016) Islamic Banking and Economic Growth: A Case of Pakistan, Islamic Banking and Finance Review, Volume 3, Issue 1.
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