ScienceDirect
Available online at www.sciencedirect.com
Procedia Computer Science 158 (2019) 964–970
1877-0509 © 2019 The Authors. Published by Elsevier B.V.
Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship 10.1016/j.procs.2019.09.137
10.1016/j.procs.2019.09.137 1877-0509
© 2019 The Authors. Published by Elsevier B.V.
Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship
Available online at www.sciencedirect.com
ScienceDirect
Procedia Computer Science 00 (2019) 000–000
www.elsevier.com/locate/procedia
1877-0509 © 2019 The Author(s). Published by Elsevier B.V.
Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship
3rd World Conference on Technology, Innovation and Entrepreneurship (WOCTINE)
The Contribution of Participation Banks to the International Trade
in Turkey: A Panel Data Analysis
Cansu Şarkaya İçellioğlu
a, Merve Büşra Engin Öztürk
b*
a,bIstanbul University-Cerrahpaşa, Sultangazi, İstanbul 34265, TurkeyAbstract
Innovations in the financial sector contribute to development of money and capital markets. When the financial sector expands, the real sector is also affected positively. Country economies can grow faster with driving force of financial markets. In fact, if the real sector extends abroad and foreign exchange flows into the country, the pressure on exchange rates can be alleviated. The emergence and development of Islamic finance can be considered as one of the financial innovations. A large amount of Islamic funds which are under the mattress, enter to financial markets through Islamic products and services. Participation banks which are the representative of Islamic finance in Turkey meet the funds needs of the real sector with the supply of funds. The aim of the study is to investigate the effects of Islamic banks on real sector and international trade. In this context, export was defined as a proxy of international trade and the impact of provided funds by participation banks on export was examined by panel data analysis. The dataset contains in 44 quarterly period over the years of 2008-2018. According to the results, the funds canalized into real sector by participation banks increase the export in Turkey. Even if there are numerous studies on the relationship between Islamic banks and economic growth, the studies about the effects of Islamic banks on international trade is limited availability. Because of this reason, it is thought that the study will contribute to the literature.
© 2019 The Author(s). Published by Elsevier B.V.
Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship
Keywords: Participation banks; islamic banks; international trade; export; financial sector; panel data
* Corresponding author. Tel.: +90 2125949083; fax: +90 2125949081. E-mail address: [email protected]
Available online at www.sciencedirect.com
ScienceDirect
Procedia Computer Science 00 (2019) 000–000
www.elsevier.com/locate/procedia
1877-0509 © 2019 The Author(s). Published by Elsevier B.V.
Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship
3rd World Conference on Technology, Innovation and Entrepreneurship (WOCTINE)
The Contribution of Participation Banks to the International Trade
in Turkey: A Panel Data Analysis
Cansu Şarkaya İçellioğlu
a, Merve Büşra Engin Öztürk
b*
a,bIstanbul University-Cerrahpaşa, Sultangazi, İstanbul 34265, TurkeyAbstract
Innovations in the financial sector contribute to development of money and capital markets. When the financial sector expands, the real sector is also affected positively. Country economies can grow faster with driving force of financial markets. In fact, if the real sector extends abroad and foreign exchange flows into the country, the pressure on exchange rates can be alleviated. The emergence and development of Islamic finance can be considered as one of the financial innovations. A large amount of Islamic funds which are under the mattress, enter to financial markets through Islamic products and services. Participation banks which are the representative of Islamic finance in Turkey meet the funds needs of the real sector with the supply of funds. The aim of the study is to investigate the effects of Islamic banks on real sector and international trade. In this context, export was defined as a proxy of international trade and the impact of provided funds by participation banks on export was examined by panel data analysis. The dataset contains in 44 quarterly period over the years of 2008-2018. According to the results, the funds canalized into real sector by participation banks increase the export in Turkey. Even if there are numerous studies on the relationship between Islamic banks and economic growth, the studies about the effects of Islamic banks on international trade is limited availability. Because of this reason, it is thought that the study will contribute to the literature.
© 2019 The Author(s). Published by Elsevier B.V.
Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship
Keywords: Participation banks; islamic banks; international trade; export; financial sector; panel data
* Corresponding author. Tel.: +90 2125949083; fax: +90 2125949081. E-mail address: [email protected]
2 Şarkaya İçellioğlu, Engin Öztürk / Procedia Computer Science 00 (2019) 000–000
1. Introduction
The monetary and banking system which establish relationship among the suppliers and requirers of funds promotes the growth of the real economy. Although the traditional banks undertake this task all over the world, it is very important to take the Islamic funds into the financial system and to ensure that the real sector benefits from these funds. In many majority Muslim countries, Islamic banking assets have been growing faster than conventional banking assets. There has also been a surge of interest in Islamic finance from non-Muslim countries such as the UK, Luxembourg, South Africa, and Hong Kong. Today Islamic finance industry has expended rapidly over the past decade, growing at 10-12% annually and reached above 2 trillion dollars 28.
The studies were conducted to investigate the relations between economic growth and Islamic banking activities. In the literature, there are many studies on the relationship between growth and financial sector or growth and Islamic banking and most of them show that there is a strong relationship among them. These studies have been mentioned in the literature review section. On the other hand, there is not enough study on between the Islamic banking and export which is an important driving force of economic growth. Therefore this study aimed to investigate relationship of Islamic banking and international trade in Turkey.
International trade that contains export and import, has always been a crucial role in growth. The export which increases a country’s exchange reserves is determined as a proxy of international trade in this study. First of all, the concept of Islamic banking and finance will be defined. Next, the studies on the relationship between Islamic finance, international trade and growth will be examined by the literature review. Lately, the panel data analyses will be used to investigate the effect of the funds allocated by Islamic banks on Turkey’s export.
2. Islamic Banking and Finance
Islamic economics and finance is based on Quran and Sharia rules. That is why, all the economic transactions must be according to this rules. The main principle of Islamic economics and finance are prohibition of interest (riba) and therefore Islamic financial system can be based entirely on equity capital, without debt. The Islamic banks gain return on profit share, not interest 20. Besides, Islamic banks transactions must have material finality 8.
Because of the Sharia rules, Islamic financing methods avoid from uncertainty, gambling, interest and speculation and it suggests sharing the profit and relying on a contract 17. Basically, it is a system in which customers borrow
from bank act as a shareholder of this bank 16. These banks are not authorized to engage speculative activities and
they must act as agents of their investment account holders by allocating their savings to profitable projects 3.
Islamic banks do not allow trading in swaps, forwards and futures. As an international trade financing, Islamic banks use methods such as morabaha, modaraba, mosharaka, sukuk etc. More than 80% of the Islamic banking business trade financing on the basis of morabaha. Trade financing or morabaha involves the banks buying what the merchant wants and then selling to him later at an agreed price (including a service fee). Investment sharing or modaraba is the basic principle of the Sharia where all parties share risks and rewards of an investment project, and the bank is also involved in the management of the project or has a voting representative in board meetings. Mosharaka is similar to Modaraba, but the investment partnership involves profits and losses based on equity participation of the bank and the entrepreneur 10.
3. The Relationship Between Islamic Banking, International Trade and Economic Growth: Literature Review
The finance is one of the key sectors, which plays an important role for economic growth. Numerous studies reveal a positive relationship between financial development and economic growth especially in developing countries. For an economy, banking system is very important, because banks collect deposits and transfer them in a loan form to investors. These loans increase total demand and thus, national income and growth rises.
Conventional banks allow fixed and predetermined interest rate. However in Islamic banking system there is no predetermined and fixed interest rate. Due to the principle of equity participation, depositors and Islamic banks share risks. This provides higher productivity and promote investments. Because of absence of interest rate risk, economic growth should be more sustainable. Also, the using money for a commodity causes Islamic banks to contribute to real
Cansu Şarkaya İçellioğlu et al. / Procedia Computer Science 158 (2019) 964–970 965 Available online at www.sciencedirect.com
ScienceDirect
Procedia Computer Science 00 (2019) 000–000
www.elsevier.com/locate/procedia
1877-0509 © 2019 The Author(s). Published by Elsevier B.V.
Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship
3rd World Conference on Technology, Innovation and Entrepreneurship (WOCTINE)
The Contribution of Participation Banks to the International Trade
in Turkey: A Panel Data Analysis
Cansu Şarkaya İçellioğlu
a, Merve Büşra Engin Öztürk
b*
a,bIstanbul University-Cerrahpaşa, Sultangazi, İstanbul 34265, TurkeyAbstract
Innovations in the financial sector contribute to development of money and capital markets. When the financial sector expands, the real sector is also affected positively. Country economies can grow faster with driving force of financial markets. In fact, if the real sector extends abroad and foreign exchange flows into the country, the pressure on exchange rates can be alleviated. The emergence and development of Islamic finance can be considered as one of the financial innovations. A large amount of Islamic funds which are under the mattress, enter to financial markets through Islamic products and services. Participation banks which are the representative of Islamic finance in Turkey meet the funds needs of the real sector with the supply of funds. The aim of the study is to investigate the effects of Islamic banks on real sector and international trade. In this context, export was defined as a proxy of international trade and the impact of provided funds by participation banks on export was examined by panel data analysis. The dataset contains in 44 quarterly period over the years of 2008-2018. According to the results, the funds canalized into real sector by participation banks increase the export in Turkey. Even if there are numerous studies on the relationship between Islamic banks and economic growth, the studies about the effects of Islamic banks on international trade is limited availability. Because of this reason, it is thought that the study will contribute to the literature.
© 2019 The Author(s). Published by Elsevier B.V.
Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship
Keywords: Participation banks; islamic banks; international trade; export; financial sector; panel data
* Corresponding author. Tel.: +90 2125949083; fax: +90 2125949081. E-mail address: [email protected]
Available online at www.sciencedirect.com
ScienceDirect
Procedia Computer Science 00 (2019) 000–000
www.elsevier.com/locate/procedia
1877-0509 © 2019 The Author(s). Published by Elsevier B.V.
Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship
3rd World Conference on Technology, Innovation and Entrepreneurship (WOCTINE)
The Contribution of Participation Banks to the International Trade
in Turkey: A Panel Data Analysis
Cansu Şarkaya İçellioğlu
a, Merve Büşra Engin Öztürk
b*
a,bIstanbul University-Cerrahpaşa, Sultangazi, İstanbul 34265, TurkeyAbstract
Innovations in the financial sector contribute to development of money and capital markets. When the financial sector expands, the real sector is also affected positively. Country economies can grow faster with driving force of financial markets. In fact, if the real sector extends abroad and foreign exchange flows into the country, the pressure on exchange rates can be alleviated. The emergence and development of Islamic finance can be considered as one of the financial innovations. A large amount of Islamic funds which are under the mattress, enter to financial markets through Islamic products and services. Participation banks which are the representative of Islamic finance in Turkey meet the funds needs of the real sector with the supply of funds. The aim of the study is to investigate the effects of Islamic banks on real sector and international trade. In this context, export was defined as a proxy of international trade and the impact of provided funds by participation banks on export was examined by panel data analysis. The dataset contains in 44 quarterly period over the years of 2008-2018. According to the results, the funds canalized into real sector by participation banks increase the export in Turkey. Even if there are numerous studies on the relationship between Islamic banks and economic growth, the studies about the effects of Islamic banks on international trade is limited availability. Because of this reason, it is thought that the study will contribute to the literature.
© 2019 The Author(s). Published by Elsevier B.V.
Peer-review under responsibility of the scientific committee of the 3rd World Conference on Technology, Innovation and Entrepreneurship
Keywords: Participation banks; islamic banks; international trade; export; financial sector; panel data
* Corresponding author. Tel.: +90 2125949083; fax: +90 2125949081. E-mail address: [email protected]
2 Şarkaya İçellioğlu, Engin Öztürk / Procedia Computer Science 00 (2019) 000–000
1. Introduction
The monetary and banking system which establish relationship among the suppliers and requirers of funds promotes the growth of the real economy. Although the traditional banks undertake this task all over the world, it is very important to take the Islamic funds into the financial system and to ensure that the real sector benefits from these funds. In many majority Muslim countries, Islamic banking assets have been growing faster than conventional banking assets. There has also been a surge of interest in Islamic finance from non-Muslim countries such as the UK, Luxembourg, South Africa, and Hong Kong. Today Islamic finance industry has expended rapidly over the past decade, growing at 10-12% annually and reached above 2 trillion dollars 28.
The studies were conducted to investigate the relations between economic growth and Islamic banking activities. In the literature, there are many studies on the relationship between growth and financial sector or growth and Islamic banking and most of them show that there is a strong relationship among them. These studies have been mentioned in the literature review section. On the other hand, there is not enough study on between the Islamic banking and export which is an important driving force of economic growth. Therefore this study aimed to investigate relationship of Islamic banking and international trade in Turkey.
International trade that contains export and import, has always been a crucial role in growth. The export which increases a country’s exchange reserves is determined as a proxy of international trade in this study. First of all, the concept of Islamic banking and finance will be defined. Next, the studies on the relationship between Islamic finance, international trade and growth will be examined by the literature review. Lately, the panel data analyses will be used to investigate the effect of the funds allocated by Islamic banks on Turkey’s export.
2. Islamic Banking and Finance
Islamic economics and finance is based on Quran and Sharia rules. That is why, all the economic transactions must be according to this rules. The main principle of Islamic economics and finance are prohibition of interest (riba) and therefore Islamic financial system can be based entirely on equity capital, without debt. The Islamic banks gain return on profit share, not interest 20. Besides, Islamic banks transactions must have material finality 8.
Because of the Sharia rules, Islamic financing methods avoid from uncertainty, gambling, interest and speculation and it suggests sharing the profit and relying on a contract 17. Basically, it is a system in which customers borrow
from bank act as a shareholder of this bank 16. These banks are not authorized to engage speculative activities and
they must act as agents of their investment account holders by allocating their savings to profitable projects 3.
Islamic banks do not allow trading in swaps, forwards and futures. As an international trade financing, Islamic banks use methods such as morabaha, modaraba, mosharaka, sukuk etc. More than 80% of the Islamic banking business trade financing on the basis of morabaha. Trade financing or morabaha involves the banks buying what the merchant wants and then selling to him later at an agreed price (including a service fee). Investment sharing or modaraba is the basic principle of the Sharia where all parties share risks and rewards of an investment project, and the bank is also involved in the management of the project or has a voting representative in board meetings. Mosharaka is similar to Modaraba, but the investment partnership involves profits and losses based on equity participation of the bank and the entrepreneur 10.
3. The Relationship Between Islamic Banking, International Trade and Economic Growth: Literature Review
The finance is one of the key sectors, which plays an important role for economic growth. Numerous studies reveal a positive relationship between financial development and economic growth especially in developing countries. For an economy, banking system is very important, because banks collect deposits and transfer them in a loan form to investors. These loans increase total demand and thus, national income and growth rises.
Conventional banks allow fixed and predetermined interest rate. However in Islamic banking system there is no predetermined and fixed interest rate. Due to the principle of equity participation, depositors and Islamic banks share risks. This provides higher productivity and promote investments. Because of absence of interest rate risk, economic growth should be more sustainable. Also, the using money for a commodity causes Islamic banks to contribute to real
966 Şarkaya İçellioğlu, Engin Öztürk / Procedia Computer Science 00 (2019) 000–000 Cansu Şarkaya İçellioğlu et al. / Procedia Computer Science 158 (2019) 964–970 3
economy. The non-return risk of allocated funds are law because these funds are used for production and trade instead of speculative fields 4.
The empirical studies in this field suggest a strong link between financial sector development and growth, thus developments in Islamic banks have brought an opportunity of growth for Islamic countries. In the literature, most of studies reveal that Islamic banking system has many contributions to the real economy. According to Imam and Kpodar (2015), Islamic banking encourages lending, increases savings, enhances financial stability and finances morally acceptable projects. El Ghattis (2011) argued that Islamic profit sharing system helps to foster economic development by encouraging equal income distribution and sustainable growth. El Galfy et all (2012) empirically proved that Islamic banking positively contributes to macroeconomic stability for both developing and developed countries. On the other hand, Jhonson (2013), argued that the diffusion of Islamic banks no significant explanatory power for GDP growth forever, Islamic financial institutions do effect the determinative power of other common growth variables. Caparole and Helmi (2018) found a strong causality between real credit and real GDP in the long run in the countries with Islamic banks. In other words, Islamic banking provide loans to projects that are directly linked to real economic activities and are not allowed to engage in speculative transactions, improves the allocation of resources in the economy and boosting long run economic growth. Rajabi and Muhammad (2014) examined the effect of the banking sector development on the economic growth measured by the quantity of the credit issued to the private sector by banks over the GDP. The results of panel data analysis for 10 Asian Islamic countries show that there is a strong relationship between banking sector development and GDP.
There are also some studies searching how Islamic banking affects growth in countries. For example, Abduh and Azmi (2012) showed a significant and positive causality between Islamic financial development and economic growth and capital accumulation in the long run using Granger causality test. Domestic financing provide by Islamic banking sector has been found to contribute to the growth of the Indonesian economy. Furqani and Mulyany (2009) found the empirical evidence that Islamic banking in Malaysia has increased economic growth and investment. Thus, this study shows that there is a contribution of Islamic banking to the real economic sectors. Safiullah (2010) showed both conventional & Islamic banks are making significant contribution in the economic development of Bangladesh. Using performance study, he claimed that Islamic banks are superior to conventional banks in Bangladesh in point of financial performance (business development, profitably, liquidity and solvency). Moreover, Islamic banks were less affected by financial crisis compared to conventional banks in the Gulf Cooperation Council countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates) and even though there exist a fall in income and growth of selected indicators, the impact was minimum compared to the change witnessed in conventional banks 22.
Abduh, Brahim and Omar (2012) proved a significant positive relationship between Islamic finance deepening and economic growth in the long run for Bahrain. Zirek et al. (2016) revealed that an increase in the share of Islamic deposits, assets and loans in total banking instruments results in an increase economic growth for Islamic cooperation countries. Tabash and Dhankar (2014) also proved that in the long run Islamic banks’ financing is positive and significantly correlated with economic growth in the Qatar, Bahrain and United Arab Emirates. Although Islamic banking still represents a relatively small share of the economy and financial system has positive impact on growth 14. Islamic banking and Islamic activities have a positive impact on the economic growth 25. The presence of
Islamic banks improve economic welfare particularly in countries with a predominantly Muslim population, higher uncertainty avoidance index and a comparatively low GDP per capita 3.
Empirical studies on relationship between Islamic banking end international trades are limited availability. The only one study has been found on this subject. Furqani and Mulyany (2009) examined the relationship between Islamic banks and international trade in Malaysia. They indicate that there is no cointegration of Islamic bank financing and international trade activities in the long run. The reason was explained by proving that the share of Islamic bank financing to international trade activities is relatively small.
4. Panel Data Analysis
In Turkey, Islamic banking system is referred as participation banks. According to data of 2018, there are 1,122 branches and 15,654 employees of participation banks in Turkey. In December 2018, participation banks held 206.8
4 Şarkaya İçellioğlu, Engin Öztürk / Procedia Computer Science 00 (2019) 000–000
billion Turkish Lira in assets, accounting for 5.3 percent of banking sector. These banks also have 124,532 billion allocated funds and 2,124 billion Turkish Lira net profit 27.
The impact on total exports of funds allocated by three largest participation banks in terms of total assets in Turkey will be examined by panel data analysis.Panel data analysis allows for the evaluation of cross-section and time series data together. The dataset of funds allocated by Albaraka Türk, Kuveyt Türk and Türkiye Finans Participation Banks has been obtained from Participation Banks Association of Turkey 27. Besides, the data of export of Turkey was
collected from Turkish Statistical Institute (http://www.turkstat.gov.tr/) on 04/09/2019. The time dimension of the study is 44 quarterly periods between the years of 2008-2018. Natural logarithms of the data were used in the analysis.
4.1. Model and Methodology
Turkey's export amount (Y) is determined as a dependent variable while the funds allocated by participation banks (X) is independent variable. The impact of the funds allocated by the banks on exports will be tested by panel data analysis. The econometric model has been defined as following.
0 1
it it it
Y
=
+
X
+
u
(1) When the graphs of the variables are examined, it is seen that the series have a linear tendency. The homogeneity of the constant and slope parameters will be tested, before the estimations are made with the linear regression model. The unobservable effects (unit effects and time effects) will be investigated in the model initially. Each unit has possibly its own characteristics that is referred to unit effects. And also, each time zone has possibly its own characteristics that is called time effects. If there is not any of these two effects, the model will be defined as the classic linear panel data model. The existence of unobservable effects were searched by the likelihood ratio (LR) test. The results are represented in Table 1 and Table 2.Table 1. Test of Unit Effects.
Random-effects Parameters Estimate Std. Err. [95% Conf. Interval] _all: Identity
sd(R.id) 0.0092411 0.0202481 0.0001261 0.6773029 sd(Residual) 0.1248395 0.0077784 0.1104881 0.1410549 LR test vs. linear model: chibar2(01) = 0.07 Prob >= chibar2 = 0.3973
Table 2. Test of Time Effects.
Random-effects Parameters Estimate Std. Err. [95% Conf. Interval] _all: Identity
sd(R.t) 0.0940163 0.0048152 0.0850368 0.1039439 sd(Residual) 9.44e-09 4.94e-10 8.52e-09 1.05e-08 LR test vs. linear model: chibar2(01) = 2863.24 Prob >= chibar2 = 0.0000
LR test for unit effects calculates probability = 0.3973 with reference to maximum likelihood estimation. However LR test estimates probability = 0.0000 for the time effects. The null hypotheses (H0) suggests that there is no unit
effects & or time effects. H0 hypothesis which test the model of unit effects versus the linear model, could not be
rejected. Despite this, H0 hypothesis has been rejected for time effects model. As a result of the LR tests, it has been
shown that there is no unit effects in constant parameter, but also time effects is existing.
By the reason of the fact that the constant parameter is heterogeneous with respect to time, the model has been determined as an unilateral time effects model. t is included in the model on behalf of time effects The parameters
0
(
+
t)
in equation 2 can also be expressed as(0t)
in equation 3.0 1 it t it it Y =
+ +
X +u (2) 0 1 it t it it Y =
+
X +u (3)Cansu Şarkaya İçellioğlu et al. / Procedia Computer Science 158 (2019) 964–970 967 Şarkaya İçellioğlu, Engin Öztürk / Procedia Computer Science 00 (2019) 000–000 3
economy. The non-return risk of allocated funds are law because these funds are used for production and trade instead of speculative fields 4.
The empirical studies in this field suggest a strong link between financial sector development and growth, thus developments in Islamic banks have brought an opportunity of growth for Islamic countries. In the literature, most of studies reveal that Islamic banking system has many contributions to the real economy. According to Imam and Kpodar (2015), Islamic banking encourages lending, increases savings, enhances financial stability and finances morally acceptable projects. El Ghattis (2011) argued that Islamic profit sharing system helps to foster economic development by encouraging equal income distribution and sustainable growth. El Galfy et all (2012) empirically proved that Islamic banking positively contributes to macroeconomic stability for both developing and developed countries. On the other hand, Jhonson (2013), argued that the diffusion of Islamic banks no significant explanatory power for GDP growth forever, Islamic financial institutions do effect the determinative power of other common growth variables. Caparole and Helmi (2018) found a strong causality between real credit and real GDP in the long run in the countries with Islamic banks. In other words, Islamic banking provide loans to projects that are directly linked to real economic activities and are not allowed to engage in speculative transactions, improves the allocation of resources in the economy and boosting long run economic growth. Rajabi and Muhammad (2014) examined the effect of the banking sector development on the economic growth measured by the quantity of the credit issued to the private sector by banks over the GDP. The results of panel data analysis for 10 Asian Islamic countries show that there is a strong relationship between banking sector development and GDP.
There are also some studies searching how Islamic banking affects growth in countries. For example, Abduh and Azmi (2012) showed a significant and positive causality between Islamic financial development and economic growth and capital accumulation in the long run using Granger causality test. Domestic financing provide by Islamic banking sector has been found to contribute to the growth of the Indonesian economy. Furqani and Mulyany (2009) found the empirical evidence that Islamic banking in Malaysia has increased economic growth and investment. Thus, this study shows that there is a contribution of Islamic banking to the real economic sectors. Safiullah (2010) showed both conventional & Islamic banks are making significant contribution in the economic development of Bangladesh. Using performance study, he claimed that Islamic banks are superior to conventional banks in Bangladesh in point of financial performance (business development, profitably, liquidity and solvency). Moreover, Islamic banks were less affected by financial crisis compared to conventional banks in the Gulf Cooperation Council countries (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and United Arab Emirates) and even though there exist a fall in income and growth of selected indicators, the impact was minimum compared to the change witnessed in conventional banks 22.
Abduh, Brahim and Omar (2012) proved a significant positive relationship between Islamic finance deepening and economic growth in the long run for Bahrain. Zirek et al. (2016) revealed that an increase in the share of Islamic deposits, assets and loans in total banking instruments results in an increase economic growth for Islamic cooperation countries. Tabash and Dhankar (2014) also proved that in the long run Islamic banks’ financing is positive and significantly correlated with economic growth in the Qatar, Bahrain and United Arab Emirates. Although Islamic banking still represents a relatively small share of the economy and financial system has positive impact on growth
14. Islamic banking and Islamic activities have a positive impact on the economic growth 25. The presence of
Islamic banks improve economic welfare particularly in countries with a predominantly Muslim population, higher uncertainty avoidance index and a comparatively low GDP per capita 3.
Empirical studies on relationship between Islamic banking end international trades are limited availability. The only one study has been found on this subject. Furqani and Mulyany (2009) examined the relationship between Islamic banks and international trade in Malaysia. They indicate that there is no cointegration of Islamic bank financing and international trade activities in the long run. The reason was explained by proving that the share of Islamic bank financing to international trade activities is relatively small.
4. Panel Data Analysis
In Turkey, Islamic banking system is referred as participation banks. According to data of 2018, there are 1,122 branches and 15,654 employees of participation banks in Turkey. In December 2018, participation banks held 206.8
4 Şarkaya İçellioğlu, Engin Öztürk / Procedia Computer Science 00 (2019) 000–000
billion Turkish Lira in assets, accounting for 5.3 percent of banking sector. These banks also have 124,532 billion allocated funds and 2,124 billion Turkish Lira net profit 27.
The impact on total exports of funds allocated by three largest participation banks in terms of total assets in Turkey will be examined by panel data analysis.Panel data analysis allows for the evaluation of cross-section and time series data together. The dataset of funds allocated by Albaraka Türk, Kuveyt Türk and Türkiye Finans Participation Banks has been obtained from Participation Banks Association of Turkey 27. Besides, the data of export of Turkey was
collected from Turkish Statistical Institute (http://www.turkstat.gov.tr/) on 04/09/2019. The time dimension of the study is 44 quarterly periods between the years of 2008-2018. Natural logarithms of the data were used in the analysis.
4.1. Model and Methodology
Turkey's export amount (Y) is determined as a dependent variable while the funds allocated by participation banks (X) is independent variable. The impact of the funds allocated by the banks on exports will be tested by panel data analysis. The econometric model has been defined as following.
0 1
it it it
Y
=
+
X
+
u
(1) When the graphs of the variables are examined, it is seen that the series have a linear tendency. The homogeneity of the constant and slope parameters will be tested, before the estimations are made with the linear regression model. The unobservable effects (unit effects and time effects) will be investigated in the model initially. Each unit has possibly its own characteristics that is referred to unit effects. And also, each time zone has possibly its own characteristics that is called time effects. If there is not any of these two effects, the model will be defined as the classic linear panel data model. The existence of unobservable effects were searched by the likelihood ratio (LR) test. The results are represented in Table 1 and Table 2.Table 1. Test of Unit Effects.
Random-effects Parameters Estimate Std. Err. [95% Conf. Interval] _all: Identity
sd(R.id) 0.0092411 0.0202481 0.0001261 0.6773029 sd(Residual) 0.1248395 0.0077784 0.1104881 0.1410549 LR test vs. linear model: chibar2(01) = 0.07 Prob >= chibar2 = 0.3973
Table 2. Test of Time Effects.
Random-effects Parameters Estimate Std. Err. [95% Conf. Interval] _all: Identity
sd(R.t) 0.0940163 0.0048152 0.0850368 0.1039439 sd(Residual) 9.44e-09 4.94e-10 8.52e-09 1.05e-08 LR test vs. linear model: chibar2(01) = 2863.24 Prob >= chibar2 = 0.0000
LR test for unit effects calculates probability = 0.3973 with reference to maximum likelihood estimation. However LR test estimates probability = 0.0000 for the time effects. The null hypotheses (H0) suggests that there is no unit
effects & or time effects. H0 hypothesis which test the model of unit effects versus the linear model, could not be
rejected. Despite this, H0 hypothesis has been rejected for time effects model. As a result of the LR tests, it has been
shown that there is no unit effects in constant parameter, but also time effects is existing.
By the reason of the fact that the constant parameter is heterogeneous with respect to time, the model has been determined as an unilateral time effects model. t is included in the model on behalf of time effects The parameters
0
(
+
t)
in equation 2 can also be expressed as(0t)
in equation 3.0 1 it t it it Y =
+ +
X +u (2) 0 1 it t it it Y =
+
X +u (3)968 Cansu Şarkaya İçellioğlu et al. / Procedia Computer Science 158 (2019) 964–970
Şarkaya İçellioğlu, Engin Öztürk / Procedia Computer Science 00 (2019) 000–000 5
Using by regression within group, it was determined which of the random effects and fixed effects models were appropriate. In this method, the unilateral time-effects model was converted to a new model by making the difference in time averages. This new model (equation 4) was estimated using the pooled least squares method. 26.
(
)
(
)
. 0 0 1 . .
(Y Yit− ) (t =
−
)+
Xit−Xt)+
t− t +( uit−ut (4)The Hausman test was applied to compare the results of the random effects and fixed effects models. H0 was
rejected according to the results of the Hausman test (prob=0.0172). Because of the random effects were inconsistent under Ha, fixed effects was chosen for the model.
Table 3: Hausman Test. X
---- Coefficients ----
Difference S.E. Fixed effects Random effects
0.1525648 0.1464776 0.0060872 0.0025558 Fixed effects = consistent under H0 and Ha
Random effects = inconsistent under Ha, efficient under H0
H0 : difference in coefficients not systematic Prob>chi2 = 0.0172
Heteroscedasticity, cross sectional dependence and autocorrelation problems could be encountered in the classical linear regression model 11. Prior to model estimation, these problems were investigated in the model. Modified
Wald test was performed for the heteroscedasticity. According to the results [chi2 (3) = 0.06 and Prob> chi2 = 0.9966], there is no heteroscedasticity. Breusch-Pagan LM test, Pesaran's, Friedman’s and Frees’s cross sectional independence tests were applied 13. There is cross sectional dependence in the data at the 1 percent probability level. Test results
for autocorrelation; F (2,125) = 0.68, Durbin-Watson= 0.95 and Baltagi-Wu LBI = 0.98 were obtained. The results indicate that autocorrelation is existing in the model.
4.2. Estimation of Model
If the model is a fixed effect model and there are heteroscedasticity, cross sectional dependence and autocorrelation problems with regard to error term, it can be used regression with Driscoll-Kraay as an appropriate estimator 25.
The final results of the model are shown in the Table 4 below. The model is statistically significant at 0.05 level. The independent variable has 42.6% power to explain the dependent variable.
Table 4. Regression with Driscoll-Kraay Estimator.
Regression with driscoll-kraay standard errors Prob>F =0.05 Method: Fixed-effects regression within R-squared=0.42
lnY Coef. Drisc/Kray
Std.Err. t P>|t| [95% Conf. Interval]
lnX 0.1525 0.3824 3.99 0.05 - 0.012 0.3171
_cons 13.7947 0.6423 21.48 0.00 11.03 16.5585
13.79 0.15
it it it
Y = + X +u (5) According to the findings, 1 unit increase in the amount of funds allocated by participation banks generate 0.15 units increase in the amount of exports. This findings supports that participation banks in Turkey make contribution to the economy. Participation banks which maintain Islamic banking activities, encourage production, promote exportation by funding real sector. In today's economy, where the exchange rate level is very substantial, development in the export sector provides to inflow foreign exchange to the country.
Cansu Şarkaya İçellioğlu et al. / Procedia Computer Science 158 (2019) 964–970 969 Şarkaya İçellioğlu, Engin Öztürk / Procedia Computer Science 00 (2019) 000–000 5
Using by regression within group, it was determined which of the random effects and fixed effects models were appropriate. In this method, the unilateral time-effects model was converted to a new model by making the difference in time averages. This new model (equation 4) was estimated using the pooled least squares method. 26.
(
)
(
)
. 0 0 1 . .
(Y Yit − ) (t =
−
)+
Xit−X t)+
t− t +( uit −ut (4)The Hausman test was applied to compare the results of the random effects and fixed effects models. H0 was
rejected according to the results of the Hausman test (prob=0.0172). Because of the random effects were inconsistent under Ha, fixed effects was chosen for the model.
Table 3: Hausman Test. X
---- Coefficients ----
Difference S.E. Fixed effects Random effects
0.1525648 0.1464776 0.0060872 0.0025558 Fixed effects = consistent under H0 and Ha
Random effects = inconsistent under Ha, efficient under H0
H0 : difference in coefficients not systematic Prob>chi2 = 0.0172
Heteroscedasticity, cross sectional dependence and autocorrelation problems could be encountered in the classical linear regression model 11. Prior to model estimation, these problems were investigated in the model. Modified
Wald test was performed for the heteroscedasticity. According to the results [chi2 (3) = 0.06 and Prob> chi2 = 0.9966], there is no heteroscedasticity. Breusch-Pagan LM test, Pesaran's, Friedman’s and Frees’s cross sectional independence tests were applied 13. There is cross sectional dependence in the data at the 1 percent probability level. Test results
for autocorrelation; F (2,125) = 0.68, Durbin-Watson= 0.95 and Baltagi-Wu LBI = 0.98 were obtained. The results indicate that autocorrelation is existing in the model.
4.2. Estimation of Model
If the model is a fixed effect model and there are heteroscedasticity, cross sectional dependence and autocorrelation problems with regard to error term, it can be used regression with Driscoll-Kraay as an appropriate estimator 25.
The final results of the model are shown in the Table 4 below. The model is statistically significant at 0.05 level. The independent variable has 42.6% power to explain the dependent variable.
Table 4. Regression with Driscoll-Kraay Estimator.
Regression with driscoll-kraay standard errors Prob>F =0.05 Method: Fixed-effects regression within R-squared=0.42
lnY Coef. Drisc/Kray
Std.Err. t P>|t| [95% Conf. Interval]
lnX 0.1525 0.3824 3.99 0.05 - 0.012 0.3171
_cons 13.7947 0.6423 21.48 0.00 11.03 16.5585
13.79 0.15
it it it
Y = + X +u (5) According to the findings, 1 unit increase in the amount of funds allocated by participation banks generate 0.15 units increase in the amount of exports. This findings supports that participation banks in Turkey make contribution to the economy. Participation banks which maintain Islamic banking activities, encourage production, promote exportation by funding real sector. In today's economy, where the exchange rate level is very substantial, development in the export sector provides to inflow foreign exchange to the country.
6 Şarkaya İçellioğlu, Engin Öztürk / Procedia Computer Science 00 (2019) 000–000
5. Conclusion
In this study, the effects of funds allocated by participation banks on the amount of export were investigated in Turkey. Albaraka Türk, Kuveyt Türk and Türkiye Finans which are the largest three participation banks in terms of asset size were analyzed by panel data for the years between 2008-2018. According to the results, there is no unit effects in the model. In other words, the results do not vary by the units. However, the parameters change over time. Deviations from the assumptions of the classical linear model have been determined in the model where the fixed effects are consistent. The regression model has been interpreted with an appropriate estimator. The results indicate that the funds allocated by participation banks increase the exportation in Turkey. It’s important to inflow foreign exchange to the country through export channels from the point of Turkey’s economy and the value of Turkish Lira. Participation banks attract Islamic funds into the financial market and have positive contributions to the real sector. When the real sector's fund requirement is satisfied, economic growth will be supported. It is thought that this study will be benefit to the literature because of the lack of studies on relationship between Islamic banking and international trade.
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