An Empirical Analysis Regarding the Effect of Sukuk Outstanding on Growth in Turkey: 2010-2019

Abstract

What is called Islamic finance today focuses on providing financial services in line with Islamic rules and ethos. Within the scope of Islamic finance developed since the 1970s, sukuk plays an essential role in Islamic banking (participation banking). In recent years, sukuk has also gained significant attention in Turkey. Despite its central role in Islamic banking and the increasing importance attached to it, the effects of sukuk on macroeconomic variables such as economic growth have not been studied in the literature extensively. Due to these reasons, this paper aims to conduct an econometric analysis about the effects of sukuk on Turkey's growth for the period of 2010-2019. The quarterly data is gathered from HMB (Treasure and Finance Ministry), TKBB (Participation Banks Association of Turkey), and MKK (Central Securities Depository of Turkey). ARDL bound test is utilized to examine the long-term effects of bonds and sukuk on economic growth. According to the results, both the governmental sukuk and the participation banking-based sukuk outstanding have statistically significant effects on Turkish growth. While the effect is positive for the former type, it is harmful to the latter. Nevertheless, for both types, the impact stays relatively minuscule. It is recommended that the governmental sukuk outstanding can be increased.