MID TEST

FINANCIAL MANAGEMENT
“ARTICLES REVIEW”

Name : JANUAR CHRISTIANTO

NIM : 20919049

Tittle The Nexus of Islamic Finance and Poverty

Author(s) Andi M. Alfian Parewangi and Azwar Iskandar
Year 2020
Journal Source Hitotsubashi Journal of Economics
Volume & No 61 No. 2
Pages 111 - 139
Source https: //www.jstor.org/stable/10.2307/26957517
Published by Hitotsubashi University
Background 1. In many countries the benefit of growth for the poor is undermined by
increase in inequality.
2. Many studies confirmed the interrelationship between financial development
and economic growth.
3. Despite the abundant empirical literature on financial linkage to growth and
poverty reduction, literature focusing on the linkage between Islamic
finance and poverty reduction are still limited.
Purpose To analyze the short and long run asymmetrical relationship between Islamic
Financing and Poverty.
Hypothesis 1. The Islamic finance and economic growth reduce the poverty in Indonesia.
2. The Islamic finance respond to the poverty condition.
Methodology 1. They applied unit root properties in the possible presence of structural break
on the variables.
2. After conforming no feedback effect from the endogenous variable, they
applied the Auto Regressive Distribute Lag (ARDL) bounds testing
approach to co-integration for the long run relationship between Islamic
Finance, economic growth and poverty reduction.
3. Derived the Error Correction Model to identify the short run dynamics of
these three variables. During the identification, model selection,
estimation, and robustness check, they take into account the possibility of
structural break on the series.

They used annual frequency data from the Statistics Indonesia (BPS) and the
World Bank. Their data set spans the period 2000 - 2017.

Since they observed the last 17 years data, a structural break may occur. They
took this into account during the stationarity test, estimation, and robustness
check. There are two approaches on determining the break, exogenously and
endogenously. They considered the use of these two approaches since some
structural break in the past has been clearly identified in nature.

The ARDL model to test for long run relationship between the variables also
anticipated the possible presence of structural breaks. Found at least one co-
integrating vector, then they re-parameterized the ARDL model of the co-
integrating vector to ECM.

Then, focus to poverty, they measured using headcount ratio at national

poverty lines and USD 2 spending per day per person. For economic growth,
they used the GDP per capita and its annual growth.

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Result 1. Islamic Financing significantly help to reduce the poverty both in the short
run and also in long run.
2. In the short run, about 40% of the short run deviation from the equilibrium
relationship among poverty, Islamic Financing, and income is adjusted in one
year.
3. The role of GDP per capita on poverty reduction in inconclusive in Indonesia.
4. The structural break in 2006 significantly affect the short run dynamics of
poverty, while the impact of structural break in 2010 was mixed.
5. There is evidence that Islamic financing respond to the poverty condition in
Indonesia. However the magnitude and direction of the response is
inconclusive.

The implication of these findings is straightforward, first, the religious or social

sector can plays important role on Islamic financing, hence poverty reduction
in Indonesia. Second, since poverty is a fundamental issue where the
aggregate economic size (GDP) plays inconclusive role on poverty alleviation,
then one can and should use a more direct and massive strategy. Since the
concentration of the poor is Moslem society, we argue that the key point on
dealing with poverty in Indonesia is empowerment of the poor by encouraging
the religious or social
motive of the people.

Limitation 1. The cross sectional variation of the data is limited since it only covers one
country;
2. Since poverty is a complex process, the econometric models used in this
study is limited to only have one endogenous variable. These open the room
for more advance studies with broader data set including the recent yearʼs data
and different variant of financial development proxies and dimensions could be
explored. Also, using dynamic econometric models is greatly encouraged to
deepen our understanding on the finance inequality linkage, and to understand
the interaction effects between financial development and the other
independent variables especially economic growth especially for Indonesia
case. Further primary researches based on detailed survey data at the micro-
level are also highly encouraged to draw more conclusions on financing access
to the have-nots.

Another Supporting Islamic and Economic Performance: Historical and Contemporary Links
Journal Author: Timur Kuran
Journal of Economic Literature, December 2018, Vol. 56 No. 4 pp. 1292-1359
Published by: American Economic Association
URL: https://www.jstor.org/stable/10.2307/26570576

The effect of Islamic banks on GDP growth: Some evidence from selected
MENA countries.
Author(s): Jamel Boukhatem & Fatma Ben Moussa
Borsa Istanbul Review 18-3 (2018) pp. 231-247
URL: www.elsevier.com/journals/borsa-istanbul-review/2214-8450