Do Islamic Financial Development and Institutional Quality Promote Inclusive Growth? Evidence From MENA Countries

Abstract

The study aims to examine impact of Islamic financial development and institutional quality on inclusive growth in MENA countries spanning from 2011 to 2021. Panel regression model is employed to investigate the relationship. Our findings reveal Islamic financial development does not significantly affect inclusive growth due to the lack of financial accessibility and inclusivity in MENA countries. In contrast, institutional quality has a significantly positive impact on inclusive growth, suggesting the better governance can provide more opportunities to promote inclusive growth. Furthermore, we found that the combined effect of Islamic financial development and institutional quality can promote inclusive growth, highlighting the role of strong governance in effectively implementing Islamic finance for marginalized groups. The study suggests the governments should enhance governance quality and adopt inclusive policies to support Islamic finance in fostering inclusive growth.