This study aims to investigate the role of macroeconomic factors in the growth of the sovereign Sukuk (Islamic bond) market in the selected Organisation of Islamic Cooperation (OIC) member countries. Specifically, it evaluates the impact of government expenditure, trade openness and inflation on the sovereign Sukuk market development.
The panel data for sovereign Sukuk-issuing countries were collected from various sources covering the period 2006–2022, subject to data availability. Given the heterogeneous nature of the data set, this study uses the method of moments quantile regression (MMQR) approach, which provides robust estimations even in the presence of data abnormalities.
The findings reveal that moderate government expenditure positively contributes to the development of the sovereign Sukuk market, whereas excessive expenditure has a counterproductive effect, particularly evident in the coefficients of upper quantiles. Trade openness emerges as a critical driver of sovereign Sukuk market growth, consistently influencing all quantiles from bottom to top. Conversely, inflation largely exhibits a neutral impact on the Sukuk market. Besides, the high inflation rate disrupts the nexus between trade and the sovereign Sukuk market. In addition, the study explores the effects of control variables, including fixed capital formation and population growth, offering further insights.
This study provides valuable policy recommendations for OIC member countries to foster the growth of the sovereign Sukuk markets, emphasising balanced fiscal policies, enhanced trade integration, moderate inflation and targeted macroeconomic strategies.
