• Ainatul Aqilah Kamarudin PhD Candidate, Department of Economics and Management Sciences, International Islamic University Malaysia, Malaysia
  • Jarita Duasa Professor, Department of Economics and Management Sciences, International Islamic University Malaysia, Malaysia
  • Salina Kassim Professor, Institute of Islamic Banking and Finance, International Islamic University Malaysia, Malaysia
  • Riasat Amin Imon Assistant Professor, Department of Economics and Management Sciences, International Islamic University Malaysia, Malaysia
Keywords: Shari’ah-Compliant Securities, Shari’ah-Compliant Market Capitalization, Industrial Production Index, ARDL.


This study examines the relationship between Islamic capital market and Malaysian real economic growth pre and post IFSA 2013 from 2007 to 2019. This study adopts both quantitative and qualitative analysis, where Autoregressive Distributed Lag (ARDL) method of cointegration is adopted for the quantitative analysis, while interview session is adopted for the qualitative analysis. The findings found that the link between Shari’ah-compliant Securities (SCS) and the real economic growth is negatively significant, while the link between Shari’ah-compliant Market Capitalization (SCMC) and the real economic growth is positively significant in both short and long runs. It is also shown that IFSA 2013 does assist the Islamic capital market sector to improve the real economic growth in Malaysia via its rules and regulations, as the coefficients and significance of the real economic growth as proxied by the industrial production index (IPI) are improving with the implementation of IFSA 2013. Besides, the qualitative results of the study have shown that Islamic capital market does promote economic growth by ensuring stability in the market and significantly contributing to the environmental, social and governance (ESG) via the implementation of SRI Sukuk, Bond Grant Scheme, ESG Financing/Sukuk, and value-based judgement projects. The work gives some insights into the field of Islamic capital market-growth nexus from the perspective of a developing country, which is Malaysia. It also delves further into the Islamic capital market-growth nexus by considering the effect of IFSA 2013.

JEL Classification Codes: E44, E58, E60, O00.


Acharya, V. V., & Viswanathan, S. X. X. X. X. (2011). Leverage, moral hazard, and liquidity. The Journal of Finance, 66(1), 99-138.

Agarwal, S., & Mohtadi, H. (2011). Systemic risk and heavy tails: the case of banks’ loan portfolio. Available at SSRN 1787258.

Ahmad, A. G., & Alawode, A. A. (2017). Mobilizing Islamic finance for infrastructure public-private partnerships. Washington, D.C. World Bank Group, 122039, 1-97. Retrieved from infrastructure-public-private-partnerships

Al Fathan, R., & Arundina, T. (2019). Finance-growth nexus: Islamic finance development in Indonesia. International Journal of Islamic and Middle Eastern Finance and Management, 12(5), 698-711.

Arshed, N., & Abduqayumov, S. (2016). Economic impact of climate change on wheat and cotton in major districts of Punjab. International Journal of Economics and Financial Research, 2(10), 183-191. Retrieved from

Arestis, P., Demetriades, P. O., & Luintel, K. B. (2001). Financial development and economic growth: the role of stock markets. Journal of Money, Credit and Banking, 33, 16-41.

Atje, R., & Jovanovic, B. (1993). Stock markets and development. European Economic Review, 37(2-3), 632-640.

Bencivenga, V. R., Smith, B. D., & Starr, R. M. (1996). Equity markets, transactions costs, and capital accumulation: An illustration. The World Bank Economic Review, 10(2), 241-265.

Hakim, B., & Uddin, M. A. (2016). Does Islamic bank financing lead to economic growth: An empirical analysis for Malaysia. University Library of Munich, Germany. Retrieved from:

Boubakari, A., & Jin, D. (2010). The role of stock market development in economic growth: evidence from some Euronext countries. International Journal of Financial Research, 1(1), 14-20.

Cooray, A. (2010). Do stock markets lead to economic growth? Journal of Policy Modeling, 32(4), 448-460.

Chu, L. K., & Chu, H. V. (2020). Is too much liquidity harmful to economic growth? The Quarterly Review of Economics and Finance, 76, 230-242.

Daoud, J. I. (2017, December). Multicollinearity and regression analysis. In Journal of Physics: Conference Series, 949(1), 012009.

Devereux, M. B., & Smith, G. W. (1994). International risk sharing and economic growth. International Economic Review, 829, 535-550.

Echchabi, A., Aziz, H.A., & Idriss, U. (2018). The impact of Sukuk financing on economic growth: the case of GCC countries. International Journal of Financial Services Management, 9(1), 60-69.

Enisan, A. A., & Olufisayo, A. O. (2009). Stock market development and economic growth: Evidence from seven sub-Sahara African countries. Journal of economics and business, 61(2), 162-171.

Ghenimi, A., Chaibi, H., & Omri, M. A. B. (2017). The effects of liquidity risk and credit risk on bank stability: evidence from the MENA region. Borsa Istanbul Review, 17(4), 238-248.

Goldsmith, R. W. (1969). Financial structure and development. Yale University Press, New Haven, HG174 G57. Retrieved from

He, Z., & Xiong, W. (2012). Rollover risk and credit risk. The Journal of Finance, 67(2), 391-430.

Henry, P. B. (2003). Capital-account liberalization, the cost of capital, and economic growth. American Economic Review, 93(2), 91-96.

Kassim, S. (2016). Islamic finance and economic growth: the Malaysian experience. Global Finance Journal, 30, 66-76.

King, R. G., & Levine, R. (1993). Finance and growth: Schumpeter might be right. The Quarterly Journal of Economics, 108(3), 717-737.

Levine, R., & Zervos, S. (1996). Stock market development and long-run growth. The World Bank Economic Review, 10(2), 323-339.

Levine, R., & Zervos, S. (1998). Stock markets, banks, and economic growth. American Economic Review, 88(1), 537-558.

McKinnon, R. I. (1982). Currency substitution and instability in the world dollar standard. The American Economic Review, 72(3), 320-333. Retrieved from

Mun, T. L. (2009). The development of GBI Malaysia (GBI). Renew. Sustain. Energy Rev, 1–8. Retrieved from 1

Musa, G. I., Bahari, Z., & Aziz, A. H. A. (2020). The impact of Islamic capital market on Malaysian real economy. Jurnal Ekonomi Malaysia, 54(2), 91-103.

Mustafa, S. A., Ramlee, R., & Kassim, S. (2017). Economic forces and Islamic stock market: Empirical evidence from Malaysia. Asian Journal of Business and Accounting, 10(1), 45-85. Retrieved from

Nawaz, H., Abrar, M., Salman, A., & Bukhari, S. M. H. (2019). Beyond finance: Impact of Islamic finance on economic growth in Pakistan. Economic Journal of Emerging Markets, 11(1), 8-18.

Naz, S. A., & Gulzar, S. (2022). Impact of Islamic finance on economic growth: an empirical analysis of Muslim countries. The Singapore Economic Review, 67(1), 245-265.

Nowbutsing, B. M., & Odit, M. P. (2009). Stock market development and economic growth: The case of Mauritius. International Business & Economics Research Journal (IBER), 8(2), 77-88.

Nurudeen, A. (2009). Does stock market development raise economic growth? Evidence from Nigeria. The Review of Finance and Banking, 1(1), 16-26. Retrieved from

Obstfeld, M. (1994). Evaluating risky consumption paths: the role of intertemporal substitutability. European Economic Review, 38(7), 1471-1486.

Osborne, J. (2010). Arguing to learn in science: The role of collaborative, critical discourse, science. 328(5977), 463-466.

Robinson, J. (1952). The model of an expanding economy. The Economic Journal, 62(245), 42-53.

Roubini, N., & Sala-I-Martin, X. (1992). Financial repression and economic growth. Journal of Development Economics, 39(1), 5-30.

Rousseau, P. L., & Wachtel, P. (2000). Equity markets and growth: cross-country evidence on timing and outcomes, 1980–1995. Journal of Banking & Finance, 24(12), 1933-1957.

Shaw, E .S. (1973). Financial deepening in economic development. The Journal of Finance, 29(4), 1345-1348. Retrieved from

Singh, A. (1997). Financial liberalisation, stock markets and economic development. The economic journal, 107(442), 771-782.

State of the Global Islamic Economy Report. (2022). Dinar Standard, Dubai Islamic Economic Development Center, and Salam Gateway. Retrieved from

Tan, Y. L., & Shafi, R. M. (2021). Capital market and economic growth in Malaysia: the role of ṣukūk and other sub-components. ISRA International Journal of Islamic Finance, 13(1), 102-117.

World Islamic Economic Forum Foundation. (2020). Promoting investments during challenging times. Retrieved from

Yani, D., Kismawadi, E. R., Nasution, I. F. A. R., & Bahri, M. I. (2022). The effect of Sharia share, sukuk, Sharia mutual funds and exchange on the national economic growth. BISNIS: Jurnal Bisnis dan Manajemen Islam, 10(1), 33-56.
How to Cite
Kamarudin, A. A., Duasa, J., Kassim, S., & Imon, R. A. (2023). ISLAMIC CAPITAL MARKET-GROWTH NEXUS PRE AND POST IFSA 2013: EMPIRICAL EVIDENCE FROM MALAYSIA. International Journal of Islamic Banking and Finance Research, 11(1), 20-34.
Research Paper/Theoretical Paper/Review Paper/Short Communication Paper