nep-isf New Economics Papers
on Islamic Finance
Issue of 2021‒02‒08
eleven papers chosen by
Mohamed Mohamed Tolba Said

  1. Work, wealth, and welfare From Islamic perspective By Hasan, Zubair
  2. Moving Away from Foreign Aid: A Case Study of Afghanistan By Karimi, Abdul Matin
  3. An Optimal Islamic Investment Decision in Two-region Economy: The Case of Indonesia and Malaysia By Syarifuddin, Ferry
  4. The banking sector and national economy By Uddin, Godwin; Ashogbon, Festus; Martins, Bolaji; Momoh, Omowumi; Agbonrofo, Hope; Alika, Samson; Oserei, Kingsley
  5. Heterodox Economic Cycles Theories By Julia M. Puaschunder
  6. CEO Compensation and Firm Performance in Emerging Market: Evidence from Indonesia Selected Listed Banks By Anwar Azazi
  7. Paving the Way for an Economic Crisis with High Leverage and Currency Mismatches: 2018-19 Crisis in Turkey By Ozatay, Fatih
  8. The Impact of Covid-19 on Productivity By Nicholas Bloom; Philip Bunn; Paul Mizen; Pawel Smietanka; Gregory Thwaites
  9. An Assessment of Global Formula Apportionment By Ruud A. de Mooij; Li Liu; Dinar Prihardini
  10. Long-Term Macroeconomic Effects of Climate Change: A Cross-Country Analysis By Matthew E. Kahn; Kamiar Mohaddes; Ryan N. C. Ng; M. Hashem Pesaran; Mehdi Raissi; Jui-Chung Yang
  11. Labour-augmenting technical change data for alternative elasticities of substitution, growth, slowdown, and distribution dynamics By Ziesemer, Thomas

  1. By: Hasan, Zubair
    Abstract: Work, wealth, and welfare constitute the divine integrative for keeping humans on road to mundane prosperity and spiritual solace. The instruction is to spread in the land after the morning prayers in search of sustenance as manna no more falls from the heaven. And no one gets more than what he works for unless God wills it. There is no limit on having wealth through permissible means but hoarding of wealt is prohibited to curb its concentration in few hands. Personal gains can be sacrificed if that would improve the lot of the weak and the deprived. Maximization of social welfare is the goal, not of individual or sectarian gains. Such must be the basics of an economic system to be called Islamic. This essay elaborates the three concepts – work, wealth and welfare elaborating their mutual relationships in an Islamic framework It investigates the position on ground in Muslim countries.
    Keywords: Work; wealth; welfare; Basic needs; Income floors, social inequalities
    JEL: J3 O5 P36
    Date: 2020–11
  2. By: Karimi, Abdul Matin
    Abstract: After the United States invasion of 2001 that toppled the Taliban’s Islamic Emirate, a Republic Government was established in Afghanistan. The newly formed Government could not succeed in raising adequate public revenue to meet the growing public expenditure. To fill the fiscal deficit, the newly formed Government relied on foreign aid grants because it could not afford debt-financing. Foreign aid grants influx since 2002 helped Afghanistan in many ways. However, a continued and massive reliance on foreign aid grants transformed Afghanistan into an aid-dependent rentier state. Besides, a large inflow of foreign aid grants also had several counterproductive consequences for the country. To understand the sources and implications of aid-dependency, as well as explore the potential solutions for overcoming aid-dependency, the author conducted this study. This research study uses a mixed research method, and the analysis is based on both primary and secondary data. This research’s findings indicate that the small size of the economy, informality, high unemployment, lack of technical and institutional capacity, high level of corruption, and enormous military spending are some of the main reasons impeding the enhancement of domestic public resource mobilization (DPRM) in Afghanistan. To overcome these challenges, the author recommended short-term, medium-term, and long-term policy recommendations that could have a reasonable chance of success to enhance DPRM in Afghanistan. These recommendations are based on the analysis of the situation in Afghanistan and the lessons learned from other countries.
    Keywords: Foreign Aid; ODA; Aid-Dependency; Afghanistan; Foreign Aid in Afghanistan; Afghanistan Aid Dependency; Fiscal Policy; Domestic Public Expenditure; Domestic Public Revenue; Domestic Revenue Mobilization; DPRM; DRM; Self-Reliance Policies; Financial Self-Reliance.
    JEL: E62 F35 H24 H25 H63 H68
    Date: 2020–12–22
  3. By: Syarifuddin, Ferry
    Abstract: In this work, the possibility of cross-border activities between two regions in the framework of the investment contract is viewed as optimal allocation problems. The problems of determining the optimal proportion of funds to be invested in liquidity and technology are analyzed in two different environments. In the first case, we consider a two-region and two-technology economy in which both regions possess the same productive technology or project, but a different stream of return. While in the second case, we examine an economy where two regions (Indonesia and Malaysia) hold different Islamic productive projects with identical returns. Allocation models are formulated in terms of investors’ expected utility maximization problem under budget constraints with respect to regional and sectoral shocks. It is revealed that optimal parameters for liquidity ratio, technological investment profile, and bank repayment are analytically characterized by the return of a more productive project and the proportion of impatient and patient investors in the region. Even though both cases employ different assumptions, they provide the same expressions of optimal parameters. The model suggests that cross-border Islamic investment activities between two regions might be realized, provided both regions hold productive projects with an identical stream of return. This paper also shows that by increasing the lower return of the project approaching the higher return, a room for inter-region investment can be created. An analytical framework of an investment contract in terms of optimal allocation model is provided.
    Keywords: Investment contract; Optimal allocation model; Two-region economy.
    JEL: C61 F36 G11
    Date: 2020
  4. By: Uddin, Godwin; Ashogbon, Festus; Martins, Bolaji; Momoh, Omowumi; Agbonrofo, Hope; Alika, Samson; Oserei, Kingsley
    Abstract: The banks are central elements of a market economy. In more than one way, they facilitate business transactions by acting as depositor and lender for many actors in the domestic and international economy. The banking industry in Nigeria has expanded in size in terms of assets in the last 60 years since the country’s independence from British colonial rule and undergone large-scale reforms vis a vis transformation in the global economy. What are the dimensions of this growth? How has it affected market efficiency and economic wellbeing of the people? This article provides answers to these questions and argue that growth has indeed happened in the banking sector by a quantification of liquid assets, investment securities and loans. It also captured its transnational dimension and how that has boosted international transactions as well as repatriation of Diaspora transfers to the national economy. This article also focused on the contradictions of the economy arising from inconsistent policies of government and meddlesomeness of global financial institutions, and their impact on the banking sector. This article ends on a prescriptive note by suggesting ways to make the banking sector more relevant in promoting productive activities in the national economy.
    Keywords: Banks , Banking , Asset , Currency , Economy , Nigeria
    JEL: E0 E02 E4 E5 E50 E58 E6 G0 O1 O10
    Date: 2021–01–21
  5. By: Julia M. Puaschunder (The New School, Department of Economics, School of Public Engagement, New York, USA)
    Abstract: Overall the following article innovatively paints a novel picture of the mass psychological underpinnings of business cycles based on information flows in order to recommend how certain communication strategies could counterweight and alleviate the building of disastrous financial market mass movements. Acknowledging that human beings are connected to and interact with each other in families, ties and larger networks of states, nations and intergovernmental institutions, studying the role of information in building socially-constructed economic correlates promises to explain how market outcomes are developed in the social compound and can be guided by media communication. Addressing problems of the neoclassical assumption of perfect information markets through the lens of ‘real competition,’ the following paper will specifically unravel how contemporary media communication produces certain types of price expectations that form consumption patterns leading to collectively-shared economic outcomes. An introduction to the history of economic cycles will lead to the analysis of the role of information in creating economic booms and busts in the age of globalization. Applying emergent risk theory onto economic fluctuations will serve as an innovative way to explain how and what information represented in the media creates economic ups and downs. Linguistic roots of news about the economy are aimed at shedding light on how media representations and temporal foci echo in economic correlates and shape market outcomes. As business cycles are a collective phenomenon, group interactions’ potential contribution to create business cycles will innovatively be outlined and the role of information flows among groups in creating price expectations unraveled. Business cycles will also be shown to obey some kind of natural complexity, as for being whimsically influenced by socio-historic and political trends. Recommendations how to create more stable economic systems by avoiding emergent risks and communicating market prospects more cautiously will be given in the discussion followed by a prospective future research outlook and conclusion.
    Keywords: Affect, Collective moods, Communication, Consumption, Coronavirus, COVID-19, Digitalization, Economic fundamentals, External shock, Information
    Date: 2020–12
  6. By: Anwar Azazi (Department of Management, Faculty of Economics & Business, Tanjungpura University, Pontianak, Indonesia. Author-2-Name: Author-2-Workplace-Name: Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: Objective - The objective of this study was to investigate empirically the relationship between the compensation of chief executive officers (CEO) and a firm's performance in the banking industry and to examine if CEO compensation affects bank performance differently between banks with and without prospect. Methodology/Technique - The author uses two measures of performance, total return on assets and Tobin, s Q, and concentrate on total CEO compensation. All data are collected from annual reports of banks listed in Indonesia Stock Exchange for a sample of 23 commercial banks or 167 firm-year observation over the 2009-2018 period utilizing the purposive random sampling technique. CEO compensation and bank performance are then analysed employing pooled regression method. Finding - This study finds supporting evidence for the agency-related problem in the banking industry in Indonesia. It then proves that high CEO compensation does have an inverse effect on bank performance, mainly on firm value. It also provides evidence that the pay-performance also demonstrates different patterns in firms with and without prospect. Novelty - This study uses novel and hand-collected data on CEO compensation in the banking industry and developing econometric evidence regarding CEO pay-performance relating to banks with and without prospect. Type of Paper - Empirical.
    Keywords: CEO compensation; Financial performance; banking industry.
    JEL: M41 G21 G32 M12
    Date: 2020–12–31
  7. By: Ozatay, Fatih
    Abstract: In the aftermath of the global financial crisis monetary policies in advanced economies caused a surge in cross-border lending to emerging market economies (EMEs). Policymakers of EMEs criticized those policies on the grounds that they pave the way for financial imbalances in EMEs and called for international policy coordination. Up to mid-2018 leverage of banks and foreign currency exposure of nonfinancial corporates increased sharply in Turkey. Under these conditions, a shock that causes a stop in capital flows can trigger crisis in EMEs. The Turkish economy was hit by several external shocks and entered a recession in the third quarter of 2018. This study aims at analyzing the role of financial vulnerabilities and domestic policies in Turkey’s 2018-19 crisis and draw policy lessons. We argue that, notwithstanding complaints regarding lack of international policy coordination, domestic policy mistakes played an important role in paving the way for the crisis.
    Keywords: Crisis, cross-border lending, currency mismatches, leverage
    JEL: E32 E52 F34 F42 G01 G38
    Date: 2020–12–25
  8. By: Nicholas Bloom; Philip Bunn; Paul Mizen; Pawel Smietanka; Gregory Thwaites
    Abstract: We analyze the impact of Covid-19 on productivity in the United Kingdom using data derived from a large monthly firm panel survey. Our estimates suggest that Covid-19 will reduce TFP in the private sector by up to 5% in 2020 Q4, falling back to a 1% reduction in the medium term. Firms anticipate a large reduction in ‘within-firm’ productivity, primarily because measures to contain Covid-19 are expected to increase intermediate costs. The negative ‘within-firm’ effect is partially offset by a positive ‘between-firm’ effect as low productivity sectors, and the least productive firms among them, are disproportionately affected by Covid-19 and consequently make a smaller contribution to the economy. In the longer run, productivity growth is likely to be reduced by diminished R&D expenditure and diverted senior management time spent on dealing with the pandemic.
    JEL: E0 L2
    Date: 2020–12
  9. By: Ruud A. de Mooij; Li Liu; Dinar Prihardini
    Abstract: Formula apportionment as a way to attribute taxable profits of multinationals across jurisdictions is receiving increased attention. This paper reviews existing literature and discusses experiences in selective federal states to evaluate the economic properties of formula apportionment relative to the current international tax regime that is based on separate accounting. It highlights major advantages, such as the elimination of profit shifting within multinational groups; and it discusses new distortions and the impact on tax competition. The analysis exploits different datasets to assess the direct revenue implications for individual countries under alternative formulas. The distributional effects across countries are found to be large, reflecting major discrepancies between where profits are currently attributed and where factors of production are located or sales take place. The largest losses appear in investment hubs (i.e. countries with a disproportionate ratio of foreign direct investment to GDP), while several large advanced countries are likely to gain. Developing countries gain most likely if employment receives a large weight in the formula; they also tend to benefit, on average, from a formula based on sales by destination.
    Keywords: Corporate income tax;Revenue administration;Personal income;Formula apportionment;Employment;WP,parent company,taxable income,company group,company transaction,enterprise tax.,non-loss-making company
    Date: 2019–10–11
  10. By: Matthew E. Kahn; Kamiar Mohaddes; Ryan N. C. Ng; M. Hashem Pesaran; Mehdi Raissi; Jui-Chung Yang
    Abstract: We study the long-term impact of climate change on economic activity across countries, using a stochastic growth model where labor productivity is affected by country-specific climate variables—defined as deviations of temperature and precipitation from their historical norms. Using a panel data set of 174 countries over the years 1960 to 2014, we find that per-capita real output growth is adversely affected by persistent changes in the temperature above or below its historical norm, but we do not obtain any statistically significant effects for changes in precipitation. Our counterfactual analysis suggests that a persistent increase in average global temperature by 0.04°C per year, in the absence of mitigation policies, reduces world real GDP per capita by more than 7 percent by 2100. On the other hand, abiding by the Paris Agreement, thereby limiting the temperature increase to 0.01°C per annum, reduces the loss substantially to about 1 percent. These effects vary significantly across countries depending on the pace of temperature increases and variability of climate conditions. We also provide supplementary evidence using data on a sample of 48 U.S. states between 1963 and 2016, and show that climate change has a long-lasting adverse impact on real output in various states and economic sectors, and on labor productivity and employment.
    Keywords: Climate change;Production growth;Labor;Public expenditure review;Climate policy;WP,math display
    Date: 2019–10–11
  11. By: Ziesemer, Thomas (UNU-MERIT, Maastricht University)
    Abstract: We solve the standard production function with constant elasticity of substitution (CES) for its labour augmenting technology term. We make capital stock data and insert them together with data from Penn World Tables (PWT9.1). This provides labour augmenting technology levels and growth rates for alternative elasticities of substitution for 70 countries, 1950-2017. The percentage growth rates of labour-augmenting technical change (LATC) are shown to fall over time (productivity slowdown) for all elasticity values in a panel data analysis. They converge to a panel average of 2.67% and 1% depending on the inclusion of human capital and the elasticity of substitution assumed. The standard growth result of a GDP growth rate equal to that of LATC and labour input holds only for LATC based on low elasticities of substitution indicating that the economies are not in steady-states. The correlation of LATC growth rates with total factor productivity growth from PWT9.1 is strongest (0.893) for LATC data based on an elasticity of substitution of 0.8. Matching the labour/capital share ratios from CES functions with those of PWT9.1 reveals a range of elasticities of substitution for each country, mostly between 0.8 and 1.2 or somewhat lower for developing countries. If the MPL-to-wage ratio is 1.6, the elasticities of substitution vary around 0.8. Using the human-capital corrected LATC growth with CES = 0.8, 13 of 69 countries have a productivity slowdown defined as growth rate below mean in the long run; the USA is not among them indicating that the US productivity slowdown is mainly one of human capital. Dynamics of coefficient of variation and kernel density distributions for LATC growth rates shows that there is neither technological convergence nor divergence.
    Keywords: technical change, growth, productivity slowdown, convergence
    JEL: O33 O47
    Date: 2021–01–21

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