The paper examines the relationship between Islamic banking and the growth of the economy in Nigeria in both the short run and long run.
The study employs quarterly secondary time series data for Islamic banking as well as major macroeconomic variables to study the contribution of Islamic banking to the economy of Nigeria. It employs autoregressive distributed lags (ARDL) and error correction model (ECM) approaches from 2013 quarter 1 up to 2020 quarter 2.
The results show that Islamic banking has a positive contribution to Nigeria's economy in both short run and long run, but this contribution is insignificant.
Policymakers should endeavor to redesign the country's financial architecture and come up with policies that can support the growth of Islamic finance sector. This will significantly strengthen Nigeria's position as one of the leading Islamic finance hubs in Africa.
This is the first study to examine the contribution of Islamic banking to the Nigerian economy according to the best knowledge of the authors.
