Does financial development cause economic growth in the ASEAN-4 countries

This paper empirically examines the short- and long-run finance-growth nexus during the post-1997 financial crisis in the ASEAN-4 countries (i.e., Indonesia,Malaysia, Thailand and the Philippines) by employing battery of times series techniques such as autoregressive distributed lag (ARDL) model, vector error correction model (VECM), variance decompositions (VDCs) and impulseresponse functions (IRFs). Based on the ARDL models, the study documents a long-run equilibrium between economic growth, finance depth, share of investment and inflation. The study also finds that the common sources of economic progress/regress among the countries are price stability and financial development. Granger causality tests based on the VECM further reveals that there are: (i) no causality between finance-growth in Indonesia; the finding in favour of “the independent hypothesis” of Lucas (1988); (ii) a unidirectional causality running from finance to growth in Malaysia, thus supporting “the finance-growth led hypothesis” or “the supply-leading view”; (iii) a bidirectional causality between finance-growth in Thailand, the finding accords with “the feedback hypothesis” or “bidirectional causality view”; and (iv) a unidirectional causality stemming from growth to finance in the Philippines, the finding echoes with “the growth-led finance hypothesis” or “the demand following view” of Robinson (1952). Based on the VDCs and IRFs, the study discovers that the variations in the economic growth rely very much on its own innovations. If policy makers want to promote growth in the ASEAN-4 countries, priority should be given for long run policies, i.e., the enhancement of existing financial institutions both in the banking sector and stock market

Assessing Volatilities of Monetary Policy and their Effects on the Islamic and Conventional Stock Markets in Indonesia

The main objective of this study is to empirically assess the volatilities of the monetary policy instruments and their effects on the Indonesian Islamic and conventional stock market. The changes in exchange rate, interest rates, and money supply and their effects on the stock markets are investigated using the using the Generalized Autoregressive Conditional Heteroskedasticity frameworks. As a big-open economy, the capital market of Indonesia is vulnerable to the global monetary shocks changes, thus the US federal funds rate is also incorporated into the GARCH model. The study documented that, with the exception of the US interest rate, the volatilities of all monetary policy variables of interest rate, exchange rate, and money supply were documented affecting the volatilities of both Islamic and conventional stock markets. These findings imply that the volatilities of Islamic and conventional stock markets have similar determinants, thus to stabilize the markets, the investigated monetary policy variables should be controlled for by the policy-makers. Any monetary policy design imposed by the policy-makers would have a similar effect on both conventional and Islamic stocks in Indonesia.DOI: 10.15408/sjie.v7i2.735

Re-Examining the Finance-Growth Nexus: Empirical Evidence from Indonesia

This paper empirically examines the short- and long-run relationships between financial development and economic growth during the post-1997 financial crisis in Indonesia by employing a battery of times-series techniques, such as Autoregressive Dis-tributed Lag (ARDL) model, vector error correction model (VECM), variance decompositions (VDCs), and impulse-response functions (IRFs). Based on the ARDL (2, 0, 1, 2) model, the study finds that there exists a long-run equilibrium between economic growth and financial depth, share of investment, and inflation. In the long run, inflation is found to be the only variable which significantly (negatively) affects economic growth, implying a crucial role of maintaining a low rate of inflation in promoting the economic growth in the country. As for the dynamic causalities among the variables, the study finds the bidirectional causation between economic growth and investment, while the unidirectional causation is only found running from financial depth to investment. The finding of independence between economic growth and financial development supports the view of “the independent hypothesis” of Lucas (1988). Finally, based on VDCs and IRFs, the study documents that the variations in the economic growth respond more to shocks in the price stability (inflation), followed by investment and financial development. Our findings indicate that if policy makers want to promote growth, attention should be focused on long-run policies, i.e., maintaining the low rate of inflation

The Short-Run And Long-Run Relationship In The Indonesia Islamic Stock Returns

This paper aims at empirically examining the short-run and long-run causal relationship between the Indonesian Islamic stock returns and selected macroeconomic variables namely inflation, money supply and exchange rate during the pre- and post- 2008 global financial turmoil period from 2002 until 2007 and from 2008 until 2013 by using monthly data. The methodology used in this study is time series econometric techniques i.e. the unit root test,co-integration test, error correction model (ECM) and variance decompositions(VDCs). The findings showed that there is cointegration between Islamic stock prices and macroeconomic variables. The results suggest that inflation, money supply, and exchange rate significantly affected the Islamic stock returns in Indonesia. These variables should be taken into account by the policy-makers as the important policy instruments in stabilizing Islamic stock markets in the countryDOI: 10.15408/aiq.v8i1.250

The Motivation of Muzakki to Pay Zakah: Study at The Baitul Mal Aceh

This study empirically explores the factors motivating Muzakki (zakat payers) to pay zakat at the Baitul Mal Aceh, Indonesia. The factors motivating Muzakki to pay zakat investigated in the study comprises culture, regulation, motivation, and Muzakki understanding on zakat. 600 questionnaires were disseminated to the respondents, which were selected based on the convenience sampling technique. Then, the data were analysed using a binary logistic regression. The results of this study showed that culture, regulation, motivation, and understanding of the Muzakki on zakat significantly and positively affected the decision of Muzakki to pay their zakat at the Baitul Mal Aceh. This study implies that in order Muzakki to pay their zakat at the Baitul Mal, Islamic cultures should be preserved among Achenese, government should enhance regulation pertaining zakat management and the people of Aceh need to be equipped with the relevant knowledge on the obligation of zakat payment. DOI: 10.15408/sjie.v6i1.430

RE-EXAMINING THE FINANCE-GROWTH NEXUS Empirical Evidence from Indonesia

This paper empirically examines the short- and long-run relationships between financial development and economic growth during the post-1997 financial crisis in Indonesia by employing a battery of times-series techniques, such as Autoregressive Distributed Lag (ARDL) model, vector error correction model (VECM), variance decompositions (VDCs), and impulse-response functions (IRFs). Based on the ARDL (2, 0, 1, 2) model, the study finds that there exists a long-run equilibrium between economic growth and financial depth, share of investment, and inflation. In the long run, inflation is found to be the only variable which significantly (negatively) affects economic growth, implying a crucial role of maintaining a low rate of inflation in promoting the economic growth in the country. As for the dynamic causalities among the variables, the study finds the bidirectional causation between economic growth and investment, while the unidirectional causation is only found running from financial depth to investment. The finding of independence between economic growth and financial development supports the view of the independent hypothesis of Lucas (1988). Finally, based on VDCs and IRFs, the study documents that the variations in the economic growth respond more to shocks in the price stability (inflation), followed by investment and financial development. Our findings indicate that if policy makers want to promote growth, attention should be focused on long-run policies, i.e., maintaining the low rate of inflation

Do Good Corporate Governance and Financing Risk Management Matter for Islamic Banks’ Performance in Indonesia?

The purpose of this study is to examine and analyze the influence of the implementation of Good Corporate Governance principles and financing risk management on the Islamic banks' performance in Indonesia over the 2010-2019 period. 11 full-pledge Islamic Banks (BUS) was selected as the study sample using the purposive sampling technique and analyzed using the panel multiple regression techniques. The study found that Good Corporate Governance (GCG) and Financing to Deposit Ratio (FDR) positively influence the Islamic banks' performance. In contrast, Non-Performing Financing (NPF) has a negative influence on Islamic banks' performance. These findings imply that to promote the performance further, the Islamic banks should enhance the implementation of GCG principles and minimize NPF by improving financing risk management and enhance their financing by allocating their existing funds to the bankable and productive economic sectors.JEL Classification: G21, G34How to Cite:Maulidar, A., & Majid, M. S. A. (2020). Do Good Corporate Governance and Financing Risk Management Matter for Islamic Banks’ Performance in Indonesia?. Etikonomi: Jurnal Ekonomi, 19(2), 169-184. https://doi.org/10.15408/etk.v19i2.15080

REAL STOCK PRICES AND THE LONG-RUN MONEY DEMAND FUNCTION IN MALAYSIA: Evidence from Error Correction Model

This study adopts the error correction model to empirically investigate the role of real stock prices in the long run-money demand in the Malaysian financial or money market for the period 1977: Q1-1997: Q2. Specifically, an attempt is made to check whether the real narrow money (M1/P) is cointegrated with the selected variables like industrial production index (IPI), one-year T-Bill rates (TB12), and real stock prices (RSP). If a cointegration between the variables, i.e., the dependent and independent variables, is found to be the case, it may imply that there exists a long-run co-movement among these variables in the Malaysian money market. From the empirical results it is found that the cointegration between money demand and real stock prices (RSP) is positive, implying that in the long run there is a positive association between real stock prices (RSP) and demand for real narrow money (M1/P). The policy implication that can be extracted from this study is that an increase in stock prices is likely to necessitate an expansionary monetary policy to prevent nominal income or inflation target from undershooting

A Comparative Analysis of the Productivity of Islamic and Conventional Mutual Funds in Indonesia: Data Envelopment Analysis (DEA) and General Least Square (GLS) Approaches

Abstract: This paper is an extended version of our earlier study (Abd. Majid and Maulana 2010) to further re-examine the relative efficiencies of selected Islamic and conventional mutual funds companies in Indonesia during the period 2004 to 2007 and their determinants. To measure their efficiencies, the output-input data consisting of a panel of conventional and Islamic mutual funds companies are empirically examined based on the most commonly used non-parametric approach, namely, Data Envelopment Analysis (DEA). It also attempts to investigate the influence of the mutual funds companies characteristics on efficiency measures using the Generalized Least Square (GLS) estimation. The study finds that, on average, the Indonesian mutual funds companies experienced a decrease in Total Factor Productivity (TFP) growth. It is mainly caused by a decline in both efficiency and technical efficiencies, where the efficiency change is largely contributed by the changes in pure efficiency rather than scale efficiency. Additionally, the study also documents that the funds size negatively affects efficiency. This indicates that due to its diseconomies of scale, a larger mutual funds company is less efficient than a smaller funds company. Finally, in comparing the efficiency of the mutual funds companies, the study finds that, on average, the Islamic unit trust companies perform more poorly than their conventional counterparts. Abstrak: Tulisan ini adalah versi ringkas dari penelitian kami sebelumnya (Abd. Majid dan Maulana 2010) untuk lebih meneliti kembali efisiensi relatif yang dipilih perusahaan Islam dan konvensional reksadana di Indonesia (2004-2007) dan penentunya. Untuk mengukur efisiensinya, output-input data yang terdiri dari sebuah panel konvensional maupun syariah perusahaan reksadana secara empiris diteliti berdasarkan pada pendekatan non-parametrik yang paling umum digunakan, yaitu, Data Envelopment Analysis (DEA). Hal ini juga mencoba untuk meneliti pengaruh karakteristik reksa dana perusahaan pada efisiensi langkah-langkah dengan menggunakan estimasi Generalized Least Square (GLS). Studi ini menemukan bahwa, rata-rata, perusahaan reksadana di Indonesia mengalami penurunan total faktor pertumbuhan produktivitas. Hal ini terutama disebabkan oleh penurunan efisiensi dan efisiensi teknis, di mana perubahan efisiensi sebagian besar disumbang oleh perubahan dalam efisiensi murni daripada efisiensi skala. Selain itu, studi ini juga mendokumentasikan bahwa ukuran dana negatif mempengaruhi efisiensi. Hal ini menunjukkan bahwa karena dis-ekonomi atas skala, reksa dana perusahaan besar kurang efisien daripada perusahaan dana yang lebih kecil. Akhirnya, dalam membandingkan efisiensi dari perusahaan reksa dana, studi ini menemukan bahwa, rata-rata performa kepercayaan perusahaan unit syariah lebih buruk daripada rekan-rekan konvensional mereka