Short-Term and Long-Term Effects of the Islamic Bank Financing in Construction Sector on GDP in Indonesia: Evidence from Conditional Error Correction Model

Eko Fajar Cahyono; Nur Syazwani  Mazlan; Mohd Naseem  Niaz Ahmad; Wan Azman Saini Wan Ngah; Azali  Mohamed

doi:10.33102/jmifr.572

Authors

Eko Fajar Cahyono Faculty of Economics and Business, Airlangga University, Surabaya, Indonesia. https://orcid.org/0000-0002-0424-0664
Nur Syazwani Mazlan School of Business, Monash University Malaysia, Malaysia.
Mohd Naseem Niaz Ahmad School of Business and Economics, Universiti Putra Malaysia, Selangor, Malaysia.
Wan Azman Saini Wan Ngah School of Business and Economics, Universiti Putra Malaysia, Selangor, Malaysia. https://orcid.org/0000-0002-3108-6789
Azali Mohamed Universiti Keusahawanan Koperasi Malaysia, Kuala Lumpur, Malaysia.

DOI:

https://doi.org/10.33102/jmifr.572

Keywords:

Islamic Bank Financing, Indonesia, GDP, Conditional Error Correction Model, Construction Sector

Abstract

Research on the role of Islamic banks on economic growth has been widely conducted. However, it focuses on total Islamic Bank Financing (IBF) rather than on sector-specific Islamic financing. This research addresses the gap by examining the short-term and long-term influence of Islamic bank financing in the construction sector on the Gross Domestic Product (GDP) in Indonesia. This research uses a quantitative approach, using the Conditional Error Correction Model (CECM) analysis method. Secondary data used in this research are from the first semester of 2006 to the first semester of 2023 and are taken and processed from related official institutions such as Bank Indonesia, the Central Statistics Agency, and the Financial Services Authority. In the autoregressive distributive lag (ARDL) model in the construction sector, IBF’s short-term impact on GDP is positive but insignificant, while the long-term effect is significantly positive.

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