Investigating the effects of Islamic banking contracts on economic growth of Iran

Abstract

This paper has aimed to investigate the effects of Islamic banking loans thereby different contracts which are permitted by sharia on GDP of Iran during (2000 to 2010) with seasonal data. In this research for estimating the function of long run relation, we use ARDL1 and VAR2 approach .Result in the former case reveals that there is a meaningful and positive effect of contracts on GDP. It also shows that the Qard Hasan (beneficence loans) elasticity of GDP is significantly different from other contracts. As in long run Qard Hasanhas the most effect on GDP afterward participating contracts and direct investment (financing) and finally trading contracts has the least effect on GDP.While in the latter case results show that the impacts of a permanent shock to the growth rate of loans on economic growth are or so positive for all contracts. And that shock will be wasted after ten periods (seasons). The impact of structural shock to the loan on liquidity is positive but decreasing. According to the results we can declare that an increment in participating contracts and Qard Hasan would enhance the GDP and influence it positively. If we decrease the dependency of trading contracts and increase the participating contracts and Qard Hasan, economic growth won't necessarily decrease.