Causality Relationship Between Banking & Industrial Production: Comparing Islamic & Conventional Banking in Turkey

Abstract

In Islamic finance, since money cannot be traded, the connection between the real economy and finance is expected to be much stronger compared to the conventional finance. In this paper, we analyse the interaction between Islamic banking and the real economy in Turkey in comparison with conventional banking. By using monthly data for the period 2010-2020 and employing Toda-Yamamoto approach, we investigate the causal relationships between six variables belonging to Islamic and conventional banking sector, and eight industrial production indexes. We find that the number of causal relationships between industrial production and Islamic banking are fewer compared to conventional banking and the directions of these relationships are mostly from the industry to banking. This means that the impact of the Islamic finance on Turkish industrial production is relatively limited, and the real economy has a strong influence on Islamic finance.
Keywords: Islamic Banking, Conventional Banking, Industrial Production 

Keywords

• islamic banking.
• conventional banking
• industrial production

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