INTERACTION OF ISLAMIC BANKING SECTOR WITH INDONESIAN ECONOMIC GROWTH FOR 2000-2010

Abstract

This paper aims to analyze the dinamics interaction of islamic banking
sector with Indonesian economic growth for 2000-2010. The methode
of analyze used in this research is granger causality and Vector Error
Correction Model (VECM). Besides that we use stationary test to
chek wether the data have unit root or not. We use time series data
of total islamic bank fnancing, fxed invesstment, trade and gross
domestic product. We found that in the short run there is evidence of
bidirectional relationship between fnancing of islamic bank, fxed
investment, trade and economi growth. Where as in the long run
there is relationship between islamic banking with economic growth
on Indonesian economy. To improve the role of islamic banking on
Indonesian economy, Bank Indonesia must push islamic banking to
expand their activity on riil sector and rural area.

Keywords: Islamic Banking sector, Financial Intermediary, Economic
Growth, Vector Error Corrrection Model