Islamic economics, banking and finance.

The normal operations of commercial banks in Western economies do not conform to the religious requirements of the Islamic faith. In this article, Shabbir Dastgir explores the differences and outlines how the worldwide industry in Islamic banking has developed new banking practices

How the Gulf states are coping with the new normal of low oil prices

The falling price of oil is beginning to have a real impact on the energy-fuelled economies of the Gulf. In 2014, after almost a decade of record highs, the price of a barrel of Brent crude began to collapse from a peak of US$140 to less than US$30. Saudi Arabia is lining up a US$2 trillion sovereign wealth fund to see it through the twilight years of the oil era

Diversification and corporate social performance in manufacturing companies

The effects of diversification on financial performance are well-established, less so the way in which diversification influences company behaviour towards stakeholder demand and social concern. This paper investigates the relationship between business diversification and corporate social performance (CSP) in an industrial setting, in Indonesia. CSP is measured with an index constructed from content and disclosure analysis of annual company reports in line with global reporting initiative standards. A sample of 107 listed manufacturing companies from the Indonesian Stock Exchange is used to estimate a lagged multiple regression model to show that industry-level diversification does not have an effect on CSP. However, distinguishing between related and unrelated diversification produces a different outcome whereby, related diversification is negatively and statistically significantly correlated with CSP. Unrelated diversification, on the other hand, shows a positive and statistically significant relationship. It means the relationship between unrelated diversification and CSP is more positive than the relationship between related diversification and CSP. The findings offer a unique insight into industrial diversification and CSP in Indonesia’s expanding manufacturing sector

Corporate Diversification and Corporate Social Performance in Indonesia

The relationship between corporate diversification and corporate social performance (CSP) is under-investigated, especially in emerging countries. This study examines the relationship between corporate diversification and CSP in Indonesia setting. Occurrence disclosure analysis has been applied to measure CSP based on 80 indicators of the Global Report Initiative (GRI). This study used multiple regressions with one-year lag dependent variables as the data analysis. The results show that the related diversification is negatively and significantly related to CSP, while, the unrelated diversification reveals a positive relationship with CSP. Besides that, unrelated diversification more correlated to CSP rather than related diversification. Furthermore, international diversification has a positive and significant relationship with CSP. Therefore, this study found that corporate diversification is a significant antecedent of CSP.JEL Classification: L25, M1

Organisational Performance and the Use of Multiple Performance Measures in an Emerging Market

Purpose This study is an empirical investigation of the relationship between the use of 41 multiple performance measures (MPMs), including financial performance measures (FPM), non-financial performance measures (NFPMs) and organisational performance (OP) in Libya. Design/methodology/approach The results are based on cross-sectional questionnaire survey data from 132 Libyan companies (response rate 61%), which were obtained just before the so-called Arab Spring. Findings MPMs are used by both manufacturing and non-manufacturing companies. Libyan business organisations are more likely to use FPMs than NFPMs. However, these companies still rely more heavily on FPMs. The relationships between the use of NFPMs and OP and the use of MPMs and OP are positive and highly significant. The relationship between the use of FPMs and OP is positive but not significant. Research limitations/implications The high power distance associated with the conservative, Libyan, Arab context will reinforce the tendency to use FPMs more than NFPMs. This may provide a performance advantage to those organisations which do adopt NFPMs. Practical implications Although there may be institutional barriers to the use of NFPMs in Libya, and other emerging markets, these are not insuperable and there is a payoff to their use. Originality/value No previous studies of emerging markets, such as the Middle East or North Africa, have looked at the relationship between OP and the adoption of such a large array of MPMs

Essays on the Transmission Mechanisms of Monetary Policy

This study presents coverage of the transmission mechanism of monetary policy in the UK. It shows that historically, monetary policy has evolved through several distinct phases and frameworks over the last quarter of a century. A "new consensus" has emerged as a key theoretical construct of this process, with implications for the nature and role of money in an endogenous framework. It is argued that this is the essential basis for the current mode of economic analysis at the Bank of England. A further series of implications of this are the outcomes of Inflation Targeting as an objective of monetary policy. The stance can be shown to underpin thinking on monetary policy rules and these are used to perform an initial econometric analysis of a monetary policy reaction function. It is argued that the essential time series properties of such rules are generally overlooked in the empirical literature. Tentative analysis suggests that Taylor-type monetary policy reaction functions may not necessarily fit with an Inflation Targeting policy. In addition, the extent of pass through from official to retail bank interest rates is considered and shown to be incomplete

The transmission of UK monetary policy across national borders: Investigation of the impact on oil prices

Does UK monetary policy affect world oil prices? Long term low interest rates and expansionary monetary policy enhanced by consequences of financial crisis are blamed for increases in oil prices. Therefore this paper explores the links between monetary policy changes and the volatility of oil prices. The aim is to identify the inventory and supply channels of transmission mechanism between UK monetary policy and oil market by estimating a SVAR model. Focusing primarily on UK monetary policy this paper contributes to an up-to-date evaluation of the effect of UK monetary policy shocks on oil prices at national, international and global level. Results show that UK monetary policy has statistically significant impact on oil prices through inventory channel at national and international level but small effect at global level. Although, surprisingly loose UK monetary policy has significant impact on OPEC oil supply rather than European oil supply. The contribution of the expansionary policy effect is sizeable and comparable with the effect of larger economies. Considering that the UK economy is set for a slow recovery with prognosis of low interest rates for the next years, particular attention must be paid to the transmission of monetary policy across national borders

World commodity prices and UK inflation indexes: Food for thought?

The dynamics of food price inflation have changed significantly. So, understanding them is important for policy not only in developing countries but also in developed countries like the UK. A question that has risen is the role, if any, of central banks in combating global food price inflation. The financial crisis and its negative consequences represent the primary problem for policy makers in stabilizing all economies. However the food crisis should not be forgotten since the dynamic of the structural problems of food prices have accelerated recently due to the problems associated with the financial crisis. As the financial crisis causes imbalances in financial markets and a liquidity trap for the banking sector, it also affects investments in agriculture in developing countries. Due to reduced growth, investment and productivity in developing countries, it is estimated that by 2020 rice prices will rise by 13 per cent, wheat by 15 per cent and maize by 27 per cent. Therefore, looking beyond the present crisis, we can expect other challenges to emerge, one of which is a possible resurgence in food and other commodity prices. This paper proposes a framework which views the recent rise in global food prices as a consequence of the global financial crisis and applies this approach to considering how the increasing prices of food products affect inflation targeting in the UK, cause inflation uncertainty and points out the weakness of Consumer Price Index (CPI) as a measure of inflation in the UK. Our results show that over the period 1970 – 2011, Granger causality tests reject the hypothesis that global food prices do not cause inflation in the UK, whereas the same hypothesis is not rejected for oil prices. Considering the rising trend of global food prices and that the contribution of food to a change in the UK’s CPI index in 2011 was 10 per cent, which makes it the most significant factor after housing and transport, opens a discussion about whether the declining weight of food prices in the UK’s CPI may disorient policy makers and lead to wrong decisions about interest rates. This paper has potential implications for future studies of the emerging challenges of monetary policy in the UK and may contribute to solving the problem of the exceeding of the inflation targeting tolerance bands in the UK by implementing a more accurate measure of inflation