Modes of Islamic financing and aggregate economic output: evidence from Islamic banking industry of Pakistan

Economic Annals-ХХI: Volume 190, Issue 5-6(2), Pages: 109-118

Citation information:
Saleem, A., Sági, Ju., & Bárczi, Ju. (2021). Modes of Islamic financing and aggregate economic output: evidence from Islamic banking industry of Pakistan. Economic Annals-XXI, 190(5-6(2)), 109-118. doi:

Adil Saleem
PhD Student (Management and Business Administration),
Doctoral School of Economics and Regional Studies,
Hungarian University of Agriculture and Life Science
1 Pater K. Str., Gödöllő, 2100, Hungary

Judit Sági
PhD (Management and Business Administration),
Associate Professor,
Budapest Business School
10-12 Buzogány Str., Budapest, 1149, Hungary

Judit Bárczi
PhD (Business and Management),
Associate Professor,
Institute of Economics,
Hungarian University of Agriculture and Life Science
1 Pater K. Str., Gödöllő, 2100, Hungary

Modes of Islamic financing and aggregate economic output: evidence from Islamic banking industry of Pakistan

Abstract. With the evolution of Islamic banking, the economic impact of Islamic finance has been studied by many authors. Islamic banks significantly differ from conventional banks in terms of underlying contracts. The asset side of Islamic banks is composed of different modes of financing, which can be categorized at participatory and non-participatory modes of financing. This study aims to examine the relationship of modes of Islamic financing in connection to the real economic output of Pakistan. Using quarterly data from 2005 to 2019, we use autoregressive distributive lag (ARDL) model to analyze the impact of modes of Islamic financing and industrial output. Our findings reveal that non-participatory modes of Islamic financing play a significant role in deriving a healthy aggregate economic output. Therefore, Industrial production found to have a significant positive long run relationship with non-participatory Islamic financing. However, financing modes based on partnership does not have significant impact on total industrial production. The results also show that poor asset quality hinders the production process in the long run and decreases the economic outcome.

Keywords: Profit and Loss Sharing; Industrial Production; Islamic Finance; ARDL; Pakistan

JEL Classification: E23; O40; E51

Acknowledgements and Funding: The authors received no direct funding for this research.

Contribution: The authors contributed equally to this work.

Data Availability Statement:
 The dataset is available from the authors upon request.



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Received 22.04.2021
Received in revised form 22.05.2021
Accepted 24.05.2021
Available online 10.07.2021