Publication:
Impact of banking subsystem liquidity creation on real economic output
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Date
2024
SDG:
Abstract
Purpose
This study aims to examine the impact of liquidity creation per capita of tri-banking system and dual banking system on real economic output.
Design/methodology/approach
This study applies the feasible generalized least square framework on the data set of 12 countries, 8 with tri-banking system and 4 with dual banking system over the 2013-2022 period.
Findings
The findings show that for countries with tri-banking system, only liquidity creation by full-fledged Islamic Banks (FIBs) and hybrid conventional banks (HCBs) spurs real output, with the impact of HCBs being greater than that of FIBs. Nonetheless, for countries with dual banking system, both FIBs' and pure CBs' (PCBs) liquidity creation fosters real output. However, the impact of PCBs is slightly greater. Finally, Granger causality results confirm only the positive impact of the tri-banking system's liquidity creation on real output.
Practical implications
For countries with tri-banking system, only HCBs' and FIBs' liquidity creation spurs real output. However, for countries with dual banking system, liquidity created by both FIBs and PCBs fosters real output. However, only liquidity created by tri-banking system has a unidirectional Granger causality with real output.
Originality/value
To the best of the authors' knowledge, this is the first study that examines the impact of the banking subsystem liquidity creation on real economic output. Examining the impact of the liquidity created by this banking subsystem on the real economy is important for both regulators and policymakers.
Keywords
Banking subsystem , Liquidity creation , Economic output
Citation
Mantai, M.M., Ismail, I. and Bacha, O.I. (2024), "Impact of banking subsystem liquidity creation on real economic output", International Journal of Islamic and Middle Eastern Finance and Management, Vol. 17 No. 4, pp. 636-661.
Publisher
Emerald Publishing Limited
Files
impact_banking_subsytem_liquidity_creation_real_econmic_output_mantai_izlin_bacha.pdf
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