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Jurnal Ekonomi Malaysia

54 (2) 2020 91 – 103

The Impact of Islamic Capital Market on Malaysian Real Economy
Impak Pasaran Modal Islam ke atas Ekonomi Benar Rakyat Malaysia

Centre for Islamic Development Management Studies
(ISDEV)
Universiti Sains Malaysia
11800 Pulau Pinang
MALAYSIA

imgani@ikcoe.edu.ng

Centre for Islamic Development Management Studies (ISDEV)
Universiti Sains Malaysia
11800 Pulau Pinang
MALAYSIA

bzak@usm.my

Centre for Islamic Development Management Studies(ISDEV)
Universiti Sains Malaysia
11800 Pulau Pinang
MALAYSIA

azreenhamiza@usm. my

Abstract

The primary purpose of the financial sector of an economy is financial intermediation. Financial intermediation activities of channelling funds from surplus to the deficit units in the economy including through capital market affect the economic growth of a country. The role of Islamic capital market in the process of affecting the growth of an economy is another dimension in finance-growth nexus. This study empirically examines the impact of Islamic capital market on Malaysian economy. It employs the ARDL bounds test approach for cointegration. The results revealed that in the long-run, Islamic capital market contributes to the Malaysian economy by way of capital formation and the efficiency of the capital served as channels of transmitting growth. However, in the short run, only Islamic capital market measure of Islamic stock market turnover contributes to the economy with productivity of capital as the only channel of transmitting growth. Moreover, there is evidence of causality between the Islamic capital market turnover and the Malaysian economy. The findings imply that the Islamic capital market effectively channelled and pooled funds to productive investment activities. It further proves the notion that in general, Islamic finance is more inclined towards real sector growth as compared to conventional counterpart due to the emphasis on equity-based financing as opposed to debt-based financing.

Keywords

Capital formation; economic growth; Islamic capital market; Islamic financial market; productivity of capital
http://dx.doi.org/10.17576/JEM-2020-5402-8
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Gani, , Bahari, , & Abdul Aziz, (2020). The Impact of Islamic Capital Market on Malaysian Real Economy. Jurnal Ekonomi Malaysia, 54(2), 91–103. http://dx.doi.org/10.17576/JEM-2020-5402-8

@article{musa2020impact,
  title={The Impact of Islamic Capital Market on Malaysian Real Economy},
  author={Gani, Ibrahim Musa and Bahari, Zakaria and Abdul Aziz, Azreen Hamiza},
  journal={Jurnal Ekonomi Malaysia},
  volume={54},
  number={2},
  pages={91—103},
 

year={2020},
}

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