Handbook of Empirical Research on Islam and Economic Life
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Handbook of Empirical Research on Islam and Economic Life

Edited by M. Kabir Hassan

In Islamic jurisprudence, a comprehensive ethic has been formulated governing how business and commerce should be run, how accountability to God and the community is to be achieved, and how banking and finance is to be arranged. This Handbook examines how well these values are translated into actual performance. It explores whether those holding true to the system are hindered and put at a disadvantage or whether the Islamic institutions have been able to demonstrate that faith-based activities can be rewarding, both economically and spiritually.
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Chapter 2: Openness, culture, legal environment and Islamic finance

Kaouthar Gazdar, Rihab Grassa and M. Kabir Hassan

Abstract

Differences in culture and legal origins cannot be ignored when examining the differences in Islamic financial development across countries. Using a sample of 29 Organization of Islamic Conference (OIC) countries over the period of 2005–14, this study assesses in the first step if culture, proxied by differences in religion and language, explains differences in Islamic finance development across countries. In the second step, we investigate whether different legal origins impact the development of Islamic finance. Finally, we examine if the importance of cultural factors in determining Islamic finance development falls as openness to international trade increases. Our results show that the relation between legal environment, culture and Islamic finance seems strong for the two indicators of Islamic finance development. We also find that Islamic and Arabic countries have a significantly more developed Islamic banking system. Openness also has a significant and a positive effect on promoting Islamic finance. Moreover, international trade reduces the influence of culture on Islamic finance development.

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