Abstract

In this paper, an attempt has been conducted to explore the relation between financial Islamic banking development (FIBD) and economic growth (EG) of Jordan over the periods of 1980–2012. Two models have been formulated to indicate this relation within the context of VECM framework. For this purpose, FINC and DEPT are used as a measure of FIBD, while RGDP used as an indicator of EG. The results show that there is bi-directional long-run Granger causality between RGDP and FINC reflecting a positive contribution of Jordanian Islamic banks in financing the process of Jordanian social and economic development. The relation appears to be unidirectional relation between RGDP and DEPT running from RGDP to DEPT reflects the excess liquidity problem that all Jordanian Islamic banks suffer from it. With regarding to short-run causality there isn’t any significant relations between FIBD and EG. Taken together, these empirical findings involve valuable information for Jordanian policy makers.

 

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