DYNAMIC NEXUS BETWEEN ISLAMIC BANKING DEVELOPMENT AND GREEN ECONOMIC GROWTH: EVIDENCE FROM DUAL-MODEL PANEL VAR AND GMM APPROACHES IN OIC COUNTRIES
DOI:
https://doi.org/10.33736/uraf.10009.2025Keywords:
Islamic Banking, Green Economic, Panel VAR, Sustainable FinanceAbstract
This study investigates the dynamic and bidirectional relationship between Islamic banking development and green economic growth across selected member countries of the Organisation of Islamic Cooperation (OIC). Employing a dual-model econometric framework—Panel Vector Autoregression (PVAR) and the System Generalized Method of Moments (GMM)—the study utilizes panel data spanning from 2010 to 2023. The empirical findings reveal a statistically significant and mutually reinforcing nexus between Islamic financial deepening and environmental sustainability. The PVAR results indicate that shocks to Islamic banking development positively influence green economic performance over time, while green economic progress reciprocally stimulates further growth in Islamic finance. The GMM estimation confirms these outcomes, addressing endogeneity and heterogeneity across countries. These results underscore the potential of Islamic finance to serve as a strategic enabler of sustainable development, particularly through instruments such as green sukuk and Shariah-compliant environmental investment vehicles. The study contributes to the limited empirical literature on Islamic green finance and offers actionable policy recommendations to strengthen the integration of Islamic banking within national and global climate agendas in OIC countries.
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