Growth, Islamic Banking and Schumpeterian Vision: An Empırıcal Evidence from the Gulf Arab States

The rapid growth of Islamic banking has attracted muchattention lately in the economic literature. The main goal of this paper is toinvestigate the relationship between the Islamic banking, economic growth andinnovation using data for the five Gulf Arab States (Bahrain, United ArabEmirates, Kuwait, Qatar and Saudi Arabia) in the period of 2001–2015. In theempirical analysis where the panel data method is used, unit root andco-integration tests were applied to the variables. It is postulated that accordingto the test findings, economic growth is co-integrated with Islamic banking andpatent application. Long run co-integration coefficients of the variables wereanalysed throughout the panel using the method of Panel Dynamic Ordinary LeastSquares (PDOLS). The conclusion of the empirical study indicates that Islamicbanking funds and innovation in chosen Gulf Arab states have positive andsignificant relations with economic growth.