nep-isf New Economics Papers
on Islamic Finance
Issue of 2021‒06‒21
sixteen papers chosen by
Mohamed Mohamed Tolba Said

  1. A brief perspective on globalization. By Rashid, Muhammad
  2. Adaptive Market Hypothesis: A Comparison of Islamic and Conventional Stock Indices By Akbar, Muhammad; Ali, Shahid; Ullah, Ihsan; Rehman, Naser
  3. Comprehensive Analysis On Determinants Of Bank Profitability In Bangladesh By Md Saimum Hossain; Faruque Ahamed
  4. Foreign Direct Investment, Governance and Inclusive Growth in Sub-Saharan Africa By Isaac K. Ofori; Simplice A. Asongu
  5. Interdependence Between Monetary Policy And Asset Prices In Asean-5 Countries By Solikin M. Juhro; Bernard N. Iyke; Paresh K. Narayan
  6. Four great Asian trade collapses By Alan de Bromhead; Alan Fernihough; Markus Lampe; Kevin Hjortshøj O’Rourke
  7. Investigating Structural Relationship Between Service Quality, Satisfaction and Loyalty in Banking Sector of Afghanistan By Haidery, Jamshed; Mandozai, Sayed Wali Shah; Amin, Hafizullahmeen
  8. Volatility Modeling of Stocks from Selected Sectors of the Indian Economy Using GARCH By Jaydip Sen; Sidra Mehtab; Abhishek Dutta
  9. Quantifying time-varying forecast uncertainty and risk for the real price of oil By Knut Are Aastveit; Jamie Cross; Herman K. van Dijk
  10. Foreign direct investment and domestic private investment in Sub-Saharan African countries: crowding-in or out? By Askandarou Cheik Diallo; Luc Jacolin; Isabelle Rabaud
  11. Does India use development finance to compete with China? A subnational analysis By Asmus, Gerda; Eichenauer, Vera; Fuchs, Andreas; Parks, Bradley
  12. Local Bank, Digital Financial Inclusion and SME Financing Constraints: Empirical Evidence from China By Zhiqiang Lu; Junjie Wu; Hongyu Li; Duc Khuong Nguyen
  13. A Bibliography Search on International Migration and Remittances Literature during the period of 1971-2020: A Case of Bangladesh By Khan, Adnan
  14. Social Accounting Matrix for Ghana 2015 By Valeria Ferreira; Miguel Ángel Almazán-Gómez; Victor Nechifor; Emanuele Ferrari
  15. The Relationship between Foreign Direct Investment and Economic Growth: A Case of Turkey By Orhan Gokmen

  1. By: Rashid, Muhammad
    Abstract: The purpose of this paper is to examine globalization from a variety of perspectives relevant to the present day and time. We first examine what is globalization in present day context, then we examine the importance of financial flows from globalization. We further examine into how digitization is taking place across the globe and the consequences that it brings. We also look at the consequences of globalization on the environment and finally we come to the discussion of the importance of globalization in present day times and especially in regards to the Covid-19 pandemic. Is prudence in terms of globalization a better path rather than irrational exuberance.? Is stability better than volatility.?
    Keywords: Globalization, Finance, Digitization, Environment, Sustainability, Covid, 19, Public Health
    JEL: F6 F60 F64 F65 I0 M1 M16 M3
    Date: 2021–03–19
  2. By: Akbar, Muhammad; Ali, Shahid; Ullah, Ihsan; Rehman, Naser
    Abstract: We assess informational efficiency of nine Dow Jones Islamic market indices and their counterpart conventional Morgan Stanley indices using data from 1996 to 2020. We test the martingale difference hypothesis of no return predictability overtime and assess the adaptive market hypothesis over different market conditions. We find that the null is rejected in a number of periods in line with the adaptive market hypothesis for both Islamic and conventional stock indices. However, we do not observe any significant differences in return predictability between Islamic and conventional stocks over different market conditions including financial crisis of 2007-08 and COVID-19 pandemic.
    Date: 2021–06–16
  3. By: Md Saimum Hossain; Faruque Ahamed
    Abstract: The study investigates the relationship between bank profitability and a comprehensive list of bank specific, industry specific and macroeconomic variables using unique panel data from 23 Bangladeshi banks with large market shares from 2005 to 2019 employing the Pooled Ordinary Least Square (POLS) Method for regression estimation. The random Effect model has been used to check for robustness. Three variables, namely, Return on Asset (ROA), Return on Equity (ROE), and Net Interest Margin (NIM), have been used as profitability proxies. Non-interest income, capital ratio, and GDP growth have been found to have a significant relationship with ROA. In addition to non-interest income, market share, bank size, and real exchange rates are significant explaining variables if profitability is measured as NIM. The only significant determinant of profitability measured by ROE is market share. The primary contribution of this study to the existing knowledge base is an extensive empirical analysis by covering the entire gamut of independent variables (bank specific, industry related, and macroeconomic) to explain the profitability of the banks in Bangladesh. It also covers an extensive and recent data set. Banking sector stakeholders may find great value from the outputs of this paper. Regulators and policymakers may find this useful in undertaking analyses in setting policy rates, banking industry stability, and impact assessment of critical policy measures before and after the enactment, etc. Investors and the bank management are to use the findings of this paper in analyzing the real drivers of profitability of the banks they are contemplating to invest and managing on a daily basis.
    Date: 2021–05
  4. By: Isaac K. Ofori (University of Insubria, Varese, Italy); Simplice A. Asongu (Yaoundé, Cameroon)
    Abstract: Motivated by the projected rebound of foreign direct investment (FDI) inflow to sub-Saharan Africa (SSA) following the implementation of the AfCFTA and the finalization of the Africa Investment Protocol, we examine how FDI modulates the effects of various governance dynamics on inclusive growth in SSA. We do this by testing two hypotheses first, whether unconditionally FDI and various governance indicators (rule of law, control of corruption, regulatory quality, governance effectiveness, political stability, and voice and accountability) foster inclusive growth in SSA; and second, whether these governance dynamics engender positive synergy with FDI on inclusive growth in SSA. Using data from the World Bank’s World Governance Indicators and the World Development Indicators for the period 1990–2020, we employ several fixed effects, random effects, and the system GMM estimators for the analysis. First, we find that FDI and all our governance dynamics are significant inclusive growth enhancers in SSA. Second, though FDI amplifies the effects of all our governance dynamics on inclusive growth in SSA, governance effectiveness, voice and accountability, and political stability are keys. Policy recommendations are provided.
    Keywords: AfCFTA; Economic Integration; FDI; Governance; Inclusive Growth; Africa
    JEL: F6 F15 O43 O55 R58
    Date: 2021–06
  5. By: Solikin M. Juhro (Bank Indonesia); Bernard N. Iyke (APAEA); Paresh K. Narayan (APAEA)
    Abstract: In this paper, we investigate the interdependence between monetary policy and asset prices in ASEAN-5 countries. Within country-specific models and proxying asset prices by the composite stock market indices of these countries, we find strong interdependence between monetary policy and asset prices. We show that real stock prices decline as interest rates increase due to a contractionary monetary policy shock. Interest rates rise in response to an increase in real stock prices induced by a stock price shock, although it does so after a couple of months after the shock. We find the interdependence of monetary policy and asset prices to hold up within panel models. The delay in interest rate response to stock price shocks originates from three of the ASEAN-5 countries, namely Indonesia, the Philippines, and Thailand.
    Keywords: Monetary Policy, Asset Prices, ASEAN-5 Countries
    JEL: E52 E58 E61 G12
    Date: 2020
  6. By: Alan de Bromhead; Alan Fernihough; Markus Lampe; Kevin Hjortshøj O’Rourke
    Abstract: This paper introduces a new dataset of commodity-specific, bilateral import data for four large Asian economies in the interwar period: China, the Dutch East Indies, India, and Japan. It uses these data to describe the interwar trade collapses in the economies concerned. These resembled the post-2008 Great Trade Collapse in some respects but not in others: they occurred along the intensive margin, imports of cars were particularly badly affected, and imports of durable goods fell by more than those of non-durables, except in China and India which were rapidly industrializing. On the other hand the import declines were geographically imbalanced, while prices were more important than quantities in driving the overall collapse.
    Keywords: Trade collapses; interwar economy; protection
    JEL: N75 F14
    Date: 2021–04–01
  7. By: Haidery, Jamshed; Mandozai, Sayed Wali Shah; Amin, Hafizullahmeen
    Abstract: This study aims to understand the relationship of service quality dimensions, customer satisfaction, and loyalty in the banking sector using data from the Afghanistan banking sector. The study surveyed 269 respondents using a standard SERVQUAL questionnaire to examine the relationship between service quality dimensions, customer satisfaction, and loyalty in the banking sector of Afghanistan. The Structural Equation Modeling approached was used to analyze data. The findings suggest that assurance, empathy, and tangibles have a positive influence on customer satisfaction. Importantly, results revealed that female customers are less satisfied as compared to their counterparts. furthermore, the findings indicate a positive influence of customer satisfaction on customer loyalty. This paper offers empirical support for bank managers to enhance the physical facilities, assure customer trust, appropriately treat customers and consider gender requirements in providing banking services. The major limitation of this study is that it only includes one private bank customer and only Kabul province. This work illustrates an initial empirical study into service quality, customer satisfaction, and loyalty in Afghanistan using well developed SERVQUAL model.
    Date: 2021–05–22
  8. By: Jaydip Sen; Sidra Mehtab; Abhishek Dutta
    Abstract: Volatility clustering is an important characteristic that has a significant effect on the behavior of stock markets. However, designing robust models for accurate prediction of future volatilities of stock prices is a very challenging research problem. We present several volatility models based on generalized autoregressive conditional heteroscedasticity (GARCH) framework for modeling the volatility of ten stocks listed in the national stock exchange (NSE) of India. The stocks are selected from the auto sector and the banking sector of the Indian economy, and they have a significant impact on the sectoral index of their respective sectors in the NSE. The historical stock price records from Jan 1, 2010, to Apr 30, 2021, are scraped from the Yahoo Finance website using the DataReader API of the Pandas module in the Python programming language. The GARCH modules are built and fine-tuned on the training data and then tested on the out-of-sample data to evaluate the performance of the models. The analysis of the results shows that asymmetric GARCH models yield more accurate forecasts on the future volatility of stocks.
    Date: 2021–05
  9. By: Knut Are Aastveit (BI Norwegian Business School); Jamie Cross (BI Norwegian Business School); Herman K. van Dijk (Erasmus University Rotterdam)
    Abstract: We propose a novel and numerically efficient quantification approach to forecast uncertainty of the real price of oil using a combination of probabilistic individual model forecasts. Our combination method extends earlier approaches that have been applied to oil price forecasting, by allowing for sequentially updating of time-varying combination weights, estimation of time-varying forecast biases and facets of miscalibration of individual forecast densities and time-varying inter-dependencies among models. To illustrate the usefulness of the method, we present an extensive set of empirical results about time-varying forecast uncertainty and risk for the real price of oil over the period 1974-2018. We show that the combination approach systematically outperforms commonly used benchmark models and combination approaches, both in terms of point and density forecasts. The dynamic patterns of the estimated individual model weights are highly time-varying, reflecting a large time variation in the relative performance of the various individual models. The combination approach has built-in diagnostic information measures about forecast inaccuracy and/or model set incompleteness, which provide clear signals of model incompleteness during three crisis periods. To highlight that our approach also can be useful for policy analysis, we present a basic analysis of profit-loss and hedging against price risk.
    Keywords: Oil price, Forecast density combination, Bayesian forecasting, Instabilities, Model uncertainty
    Date: 2021–06–13
  10. By: Askandarou Cheik Diallo (LEO - Laboratoire d'Économie d'Orleans - UO - Université d'Orléans - Université de Tours - CNRS - Centre National de la Recherche Scientifique); Luc Jacolin (Centre de recherche de la Banque de France - Banque de France); Isabelle Rabaud (LEO - Laboratoire d'Économie d'Orleans - CNRS - Centre National de la Recherche Scientifique - Université de Tours - UO - Université d'Orléans)
    Abstract: With a fall of 42% of Foreign Direct investment (FDI) flows worldwide in 2020, the Covid-19 crisis has raised important concerns about the impact of this source of financing on economic growth in Africa, in particular through its effect on national investment. While FDI is often seen as a welcome boost to economic growth and long run development, its net effect may depend critically on whether it stimulates domestic private investment or crowds it out and over what time horizon. This paper investigates the relationship between FDI and private investment in Sub-Saharan Africa (SSA), using a sample of 40 countries over 1980- 2017. To disentangle short term from long-term dynamics, our empirical analysis is based on Pooled Mean Group (PMG), Mean Group (MG) and Dynamic Full Effects (DFE). We find that FDI has little effect on private investment in the short run but significant crowding-in effects in the long-run: a one percentage point increase of the share of FDI in GDP leads to a 0.29% rise in private investment, in the long run. Our results also show that FDI interacts with public domestic investment to boost these positive effects. Finally, we show that the impact of FDI on domestic private investment is stronger in non-natural resource exporting diversified countries as opposed to non-diversified commodity exporters.
    Keywords: Financial development,Domestic investment,Foreign direct Investment,Crowding-in/crowding-out effects
    Date: 2021
  11. By: Asmus, Gerda; Eichenauer, Vera; Fuchs, Andreas; Parks, Bradley
    Abstract: China and India increasingly provide aid and credit to developing countries. This paper explores whether India uses these financial instruments to compete for geopolitical and commercial influence with China (and vice versa). To do so, we build a new geocoded dataset of Indian government-financed projects abroad between 2007 and 2014 and combine it with data on Chinese government-financed projects. Our regression results for 2,333 provinces within 123 countries demonstrate that India's Exim Bank is significantly more likely to locate a project in a given jurisdiction if China provided government financing there in the previous year. Since this effect is more pronounced in countries where China has made public opinion gains relative to India and where both lenders have a similar export structure, we interpret this as evidence of India competing with China. By contrast, we do not find evidence that China uses official aid or credit to compete with India through co-located projects.
    Keywords: development finance,foreign aid,social development assistance,official credits,new donors,China,India,geospatial analysis
    JEL: F34 F35 F59 H77 H81 O19 O22 P33 R58
    Date: 2021
  12. By: Zhiqiang Lu; Junjie Wu; Hongyu Li; Duc Khuong Nguyen
    Abstract: This paper investigates the impact of local banks and digital financial inclusion on small and medium enterprise (SME) financing constraints. Using data of Chinese SMEs for the period 2007?2017, our robust results find (1) SMEs financing constraints are negatively associated with the proportion of local bank branches and the degree of digital financial inclusion; (2) the effect of local banks is more pronounced for small, transparent, and firms in the regions less dependent on bank credit; and (3) local bank branches and digital financial inclusion have a substitution effect on alleviating SMEs financial constraints. The findings shed light on how digital finance technologies could influence traditional SME-bank relationship and have important policy and managerial implications.
    Keywords: local banks; digital financial inclusion; financing constraints; SMEs; China.
    Date: 2021–01–01
  13. By: Khan, Adnan
    Abstract: With nearly 8 million of its 160 million residents living abroad, Bangladesh has one of the world’s largest emigrant populations, ranking only behind India, Mexico, China, Russia, and Syria, according to estimates from the United Nations’ Population Division. The increasing outward orientation of Bangladeshis after national independence in 1971 as well as the 1973 oil boom and thus an increasing need for cheap labor in the Middle East then led to a rapid growth of international labor migration from Bangladesh. In 1976, only 6,000 Bangladeshis left to work abroad. Since then, the number of both temporary expatriate workers and permanent out-migrants has increased dramatically. The main purpose of this paper is to highlight how much progress has been made in the field of international migration and remittances research on the fiftieth anniversary of Bangladesh's independence. Thus, this paper delve out all segments of international migration from Bangladesh to worldwide and remittances inflows vice versa.
    Keywords: migration, expatriate, diaspora, temporary, workers, labour, remittances, literature.
    JEL: J6 J60 J61 J62
    Date: 2020
  14. By: Valeria Ferreira (External Consultant at European Commission – JRC Seville); Miguel Ángel Almazán-Gómez (Centro de Predicción Económica (CEPREDE)- Madrid); Victor Nechifor (European Commission - JRC); Emanuele Ferrari (European Commission - JRC)
    Abstract: A Social Accounting Matrix (SAM) is a comprehensive and economy-wide database recording data on all transactions between production activities, factors of production, institutions, and the rest of the world within a specific economy during a certain period. It has two principal objectives. First, it represents a complete snapshot of the economy showing the economic structure and the circular flow of income and expenditure in the country or region under analysis. Second, in order to analyse how the economy works and to predict the effects of policy interventions, it is used as a database in multisectoral linear models by calculating multipliers, and for the calibration and exploitation of Computable General Equilibrium (CGE) models. This report presents Ghana's SAM for 2015, with the main purpose of providing a suitable database for implementing and evaluating the country's own developmental, social and economic policies and initiatives. To this end, the structure of the SAM is presented in detail, explaining the meaning of each account and indicating some estimations and modifications made. Considering the characteristics of the Ghanaian economy, this SAM shows a special structure to reflect the Home Production for Home Consumption (HPHC) issue and a high disaggregation of the agricultural and food sector. Furthermore, considering the SAM as a database, a descriptive analysis of the Ghanaian economy and the linear multipliers analysis are presented. Annex 2 explains how to download the matrix available online.
    Keywords: Social Accounting Matrices; Ghana: linear multisectoral models; multipliers.
    JEL: E16 Q1
    Date: 2021–05
  15. By: Orhan Gokmen
    Abstract: This paper examines the relationship between net FDI inflows and real GDP for Turkey from 1970 to 2019. Although conventional economic growth theories and most empirical research suggest that there is a bi-directional positive effect between these macro variables, the results indicate that there is a uni-directional significant short-run positive effect of real GDP on net FDI inflows to Turkey by employing the Vector Error Correction Model, Granger Causality, Impulse Response Functions and Variance Decomposition. Also, there is no long-run effect has been found. The findings recommend Turkish authorities optimally benefit from the potential positive effect of net incoming FDI on the real GDP by allocating it for the productive sectoral establishments while effectively maintaining the country's real economic growth to attract further FDI inflows.
    Date: 2021–06
  16. By: Solikin M. Juhro (Bank Indonesia)
    Abstract: This paper is aimed to explore salient issues of central banking practices, especially on challenges confronted by central banks in the digital era, lessons learned, as well as their implications. As we have acknowledged, in the midst of major financial crises in the last two decades, central banks faced very complex policy challenges blighted with high uncertainty, all of which have changed the practical and theoretical perspectives of central bank policy. The complexity and uncertainty of issues faced by central banks have and will continue to evolve in line with the advancement of digital technology. Navigating central banking practices in the digital era, therefore, is a very challenges task that requires the central bank's ability to create breakthroughs and orchestrate policy innovations. While the central bank policy mix is still a viable strategy, central banks are required to operate beyond conventional wisdom, with novel practices. Optimizing the benefits of technological advances and becoming a relevant regulator in the digital era must anchor the central bank's strategy in the future.
    Keywords: Central Bank Policy, Digital Transformation, Central Bank Digital Currency
    JEL: E52 E58 O3
    Date: 2021

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