This study aims to examine the impact of Islamic finance and digitalization on economic growth, measured by real GDP growth, focusing on Islamic banking development, sukuk issuance and digital investment while controlling for governance effectiveness and inflation.
The study uses a balanced macropanel of six leading Islamic Finance Development Indicator (IFDI) countries over 2015–2024. A fixed-effects model with Driscoll–Kraay standard errors is used to address heteroskedasticity, serial correlation, cross-sectional dependence and common global shocks. A robustness test excluding the COVID-19 year (2020) is conducted to verify result stability.
Islamic banking development and sukuk issuance do not show statistically significant short-run effects on economic growth after controlling for country and time effects. In contrast, digitalization shows a positive and highly significant association with economic growth, indicating that technological investment may function as an important structural factor related to growth. Governance effectiveness and inflation are not significant, suggesting they function primarily as enabling conditions rather than immediate growth drivers.
Policymakers should prioritize digital transformation through ICT infrastructure, digital public services and innovation ecosystems. Islamic finance development should focus not only on expanding financial assets but also on strengthening productive financing, risk-sharing instruments and linkages with the real economy.
This study integrates Islamic finance, digitalization and institutional quality within a unified macropanel framework for leading IFDI countries, highlighting the central role of technological transformation in supporting economic growth.
