Islamic and Conventional Financial Inclusion-Green GDP Nexus: Case of OIC Countries

Abstract

Our study investigates the impacts of both Islamic and conventional financial inclusion on green GDP in 19 of OIC countries using some macroeconomic factors. We evaluate the effects of ATM and bank branches of Islamic and conventional banks as a financial inclusion component, institutional quality, human capital, trade openness on green GDP from 2013 to 2021 using the Difference GMM (D-GMM) estimator. According to the study's empirical findings, institutional quality negatively correlates with green GDP. In addition, we found that bank branches of Islamic banks have a positive and significant impact on green GDP in OIC countries. Whereas, human capital significantly negatively affects green GDP. According to our research, a 1% increase in institutional quality leads to a 0.31% decrease in green GDP. Accordingly, a 1% rise in Islamic bank branches increase green GDP by 0.045%. Despite the Islamic side, the conventional financial inclusion shows no dynamic effects on green GDP. The results validate the link as a higher degree of access to Islamic financial services contributes positively to green GDP in OIC countries. Even though institutional quality proxied by control of corruption contributed negatively to green GDP, OIC governments should emphasise preserving and expanding the Islamic means of financial services to increase and promote green GDP in effort to minimize environmental degradation.