Impact of Islamic Banks Investment and Macroeconomic variables towards Pakistan Economic growth
Abstract
This study examines the impact of Islamic banks investment on Pakistan’s economic growth. For which we have taken 10 years’ data from 2014 to 2024 data of all dependent and independent variables to analyze their relationship for the purpose to maximize economic growth of Pakistan. Dependent variable is Gross Domestic Product per capita growth in percentage (GDP) for Pakistan Economic growth. Independent variable is Islamic investments, role used 4 major Islamic banks data to use its Investment to deposit ratio (IDR) and Advance to Deposit ratio (ADR). Four major banks are Meezan Bank, BankIslami Pakistan LTD, MCB Islamic Bank LTD, and Al-Baraka LTD. Further variables are GDP deflator (INF), Policy rates (INT), Exchange rates (Ex). Firstly, done regression model to check the authenticity of the model then applied correlation test. For opting the best model for this research applied unit root test to confirm that data is stationary then by utilizing the ECM model, the research analyzes time-series data on interest rates, exchange rates, inflation, and key Islamic investment indicators such as the Investment-to-Deposit Ratio (IDR) and Advance-to-Deposit Ratio (ADR) of major Islamic banks in Pakistan. Findings indicate that all the variables plays a critical role in economic stability, with interest rates showing a significant impact on GDP. The exchange rate has a strong negative effect on growth, highlighting the importance of currency stability. Inflation also negatively affects economic expansion, reinforcing the necessity of effective monetary control. In contrast, Islamic investment contributes positively to economic development, with ADR demonstrating a stronger impact than IDR. The results suggest that a well-balanced monetary policy, coupled with efficient Islamic financial practices, can drive sustainable economic growth. This study fills a significant research gap by incorporating Islamic investment into macroeconomic models, offering policy insights for fostering financial stability and economic progress in Pakistan.
Keywords- GDP, Interest rate, Exchange rate, Inflation rate, Islamic Investment, Economic Growth.
