Islamic finance is one of the most rapidly growing sectors in the financial system in Indonesia. At the same time the Indonesian economy also showed positive growth. The main objective of this research is to assess Islamic finance in Indonesia's economic growth. This paper analyzes empirically the relationship between the development of the Islamic financial system and economic growth in Indonesia. The data used are time series from 2012 to 2019. These data include disbursed Islamic bank financing, the amount of sovereign sukuk issuance and corporate sukuk as independent variables related to proxies for the development of Islamic financial systems and proxies for economic growth as dependent variable. For the analysis, the unit root test, cointegration test and granger causality test were done. The basic analysis used in this research is the Vector Error Correction Model (VECM), and the Granger Causality Test is used to determine the direction of causality. This study also uses the Impulse Response Function and Variance Decomposition to determine the shock of each variable against the other variables. Empirical results show there is a positive relationship between the growth of the Islamic financial sector and economic growth in Indonesia. This is evidence that the Islamic banking system and sukuk can encourage economic growth. Structural analysis on VECM through the analysis of Variance Decomposition obtained from the results of Islamic banks and state sukuk is the dominant variable that contributes to the shock of economic growth. Therefore, in terms of improving the Indonesian economy growth, disbursed Islamic bank financing and sukuk can be considered as an effective financial instrument.
|Al-Mashrafiyah: Jurnal Ekonomi, Keuangan dan Perbankan Syariah
|Published - 2020