The Role Of Islamic Banking On The Djibouti's Economic Growth

In this research,the researcher attempted to treat and study an important issue in the world of business and finance,concerning the role of Islamic banking on economic growth,especially growth in Djibouti.Study showed the significant position that Islamic banks participate in process of growth generally.The philosophy of Islamic banks is lying on the participation & risk to funds in the field of direct investment such as participation and speculation,and other transactions that contribute to investment indirectly,such as Murabaha,agriculture,industry and others away from the field of lending interest(usury)just for profit gain only.Islamic banking is type of financial mediation lying on profit and loss sharing(PLS)and evasion to the interest based commitment and contract that require extreme endanger and finance actions that forbidden beneath Islamic principle.The research aimed for explore the role of Islamic banking on Djibouti's economic growth.This quarterly time series data of economic growth,foreign direct investment,(total finance and savings)of Islamic banks a period Q1:2007-Q4: 2015 are use in this paper.Where unit root test,Co-integration test,Granger Causality and VECM are applied.This study found that total finance of Islamic banking has a positive association by Djiboutian economic growth in long term.Also,total savings of Islamic banks has positive association with Djiboutian economic growth in the long run.The results also shown that FDI doesn't has a granger cause to the economic growth,so that it means the Islamic banking plays an important role to Djibouti's economy.So this study concluded that an increase in savings and financing of Islamic banks drive economic growth while a decreasing both of them conversely affect economic growth.While the study recommended that government should develop effective policies on fdi to contribute the country's economic growth.