The Impact Of Financial Development And Trade Openness On Economic Growth In Muslim Countries

The role of financial development and trade openness in economic growth has been discussed in many empirical studies.These studies have shown the role of both factors in affecting economic growth in;individual countries,various groups of countries categorizing by various economic characteristics,and regional blocks,etc.In line with these studies,an effort has made in this paper to investigate this relationship in Muslim countries,which are suffering from various economic,social and political problems recently.This paper investigates the impacts of trade openness and financial development on economic growth,and it is also exploring the long relation among these variables in Muslim countries.For this purpose,twenty-six Muslim countries have been chosen by availability of data for the majority of the variables for the period1974-2014.Further,these countries are divided into;lower income,higher income,and countries which are a member of OPEC.Firstly,the impact of trade openness and financial development is examined through adopting a fixed and random effect method for all panel countries,low and income countries,and OPEC countries.The majority of the findings have indicated that various indicators of financial development have a positive and significant effect on growth.Similarly,the effect of trade openness is also positive in all panel countries and various groups.Secondly,this paper also tests the long run relationship among the variables by employing Panel Co-integration method.For this purpose,various Panel Unit Root tests have been used to find the order of integration of the variables.The results of Panel unit root tests have shown that all variables are initially non-stationary,and the given variables are converted to stationary at the first difference.In addition,the results from Panel Co-integration test have revealed the long run relationship among economic growth with financial development and trade openness.Lastly,by employing Panel Co-integration,the affiliation between trade openness and financial development is also examined in this study.The findings have shown that;trade openness has a positive influence on financial development,and also the long run relation among these variables.This paper also identifies the determinants of financial development which are;trade openness,financial openness and economic growth.Hence,based on the findings of this study,it is recommended that these countries should adopt open trade policies for augmenting economic growth.Similarly,these economies should also develop their financial sector for long-term economic growth and development.In addition to earlier mention policies,these economies should also invest in the human capital for growth and development.This paper also recommends that these countries should encourage exports by adopting pro-export policies for enhancing economic growth.On the other hand,these economies should reduce their reliance on imported goods.Similarly,emphasis should be on attracting foreign direct investment,which is also essential for augmenting economic growth.It is also suggested that these countries should maintain law and order and political stability is essential for attracting foreign direct investment and conducive environment for investment.Therefore,it is suggested that priority should be given to;maintain law and order,and political stability for better outcomes of various economic policies.The future research in Muslim countries should focus on the exploring the effect of political factors and the role of institutions in augmenting economic growth.Also,research should focus on examining the role of Islamic financial institutions and NonIslamic financial institutions in growth and development by using micro-level data.