Impact of Endogenous Variables of Islamic Banking Performance and other Economic Variables on Economic Growth of Pakistan; An Evidence from ARDL

أثر المتغيرات الداخلية لأداء البنوك الإسلامية والمتغيرات الاقتصادية الأخرى على النمو الاقتصادي في باكستان: دراسة تحليلية باستخدام نموذج الانحدار الذاتي للإبطاء الموزع (ARDL)

Abstract

This study explores the relationship between Islamic banking and economic growth in Pakistan, considering Islamic bank financing and deposits as well as key economic variables such as financial development, trade openness, and inflation. The empirical test has been conducted by using quarterly data.  Data is collected from the second quarter of 2006 to fourth quarter of 2021. To examine the short and long run relationship ARDL Bound and general ARDL testing is used. The research identifies a significant and positive association between Islamic banking total finance (TF), Islamic banking total deposits (TD) with economic growth (GDP) in the short term.  This indicates that economic development can be boosted by financing provided by Islamic institutions. Inflation and economic growth do not correlate. The study also highlights the impact of other economic variables, such as financial development (FD) and trade openness (TO), on economic growth at various significance levels. Given these findings, the paper advocates for proactive efforts to expand Pakistan's Islamic banking and financial sector, with a focus on diversification, governmental support, and the development of a more equitable and sustainable economy.