Influence of Foreign Direct Investment (FDI) Rates and Remittances on Islamic Financial Institutions Growth and Progress in Developing Economies
DOI:
https://doi.org/10.52461/sabas.v6i2.3152Keywords:
Foreign Direct Investment (FDI), Remittance Collected (RC), Islamic, Financial Organization (IFO), growth, Islamic Banks (IBs) & ARDLAbstract
This study determined what major macroeconomic factors impacted the growth of the IBs sector in Pakistan. The IBs sector has developed rapidly in recent years, particularly in Pakistan, where it ranks among the top industries in the Islamic world. Two macroeconomic variables were examined to determine whether macroeconomic factors significantly impacted Islamic finance growth: the rate of new empirical theories and the volume of settlements. ARDL model and annual data were used for every variable between (2014-2023) in the study. Based on the long-run ARDL analysis, remittances have a greater impact on Islamic banking growth than foreign direct investment (FDI). Both foreign direct investment and remittances have a significant impact on the long-run development of IBs in Pakistan, with remittances having a greater effect than FDI direct investment. While Islamic and non-Islamic banks compete with each other, their presence in a country provides an adequate structure for rigorously motivated individuals and contributes significantly to its financial sector growth. Remittances provide a more reliable source of funding for Islamic banks, as they are typically less reliant on external borrowing. Additionally, remittances are more likely to be spent on investments that benefit the local economy, whereas FDI benefits foreign investors. All in all, remittances are a significant source of revenue for Islamic banks, as they offer a more immediate and sustainable benefit to the local economy.
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