Does sukuk market development spur economic growth?

We investigate the impact of sukuk market development on economic growth using a sample comprising all sukuk-issuing countries spanning the period 1995-2015. We use the system GMM estimator to tackle potential omitted variable bias, endogeneity, and simultaneity issues. We report a strong and robust evidence that sukuk market development is conducive to economic growth, even after controlling for various measures of financial market development, institutional quality, and classical determinants of economic growth. In addition, the evidence does not support the well-known positive association between financial development and economic growth. We conclude that the development of sukuk markets may have promoted financial inclusion by eliminating the negative effects of religious self-exclusion, which stimulates investment and economic growth.