Investigating the Asymmetric Effect of Sukuk Returns on Economic Growth - Evidence from Indonesia, a NARDL Perspective

Purpose - This paper aims to examine the asymmetric association between Sukuk returns and economic growth in Indonesia. Design/methodology/approach - The Non-linear autoregressive distributed lag (NARDL) model and Granger causality test are employed from the periods 2014:M1 to 2019:M4, using GDP Growth as a proxy of economic activities, Indonesia Sukuk return index as explanatory variables and inflation and interest rate as control variables. Findings - The results posit a long run asymmetric relationship between Sukuk return and economic growth and that a positive shock on Sukuk returns results to an increase in GDP growth by 0.31% in the long run. Moreover, the results also imply that Sukuk returns and economic growth moves at different magnitude in Indonesia. However, a negative shock in the long run has no impact on economic growth. Finally, the granger causality analysis reported a unidirectional causal association flowing from Sukuk returns to economic growth, while interest and inflation rate has a neutral association with economic growth. Research limitations/implications -The sample size used in this paper is relatively small due to data availability; therefore, contradicting results with other studies conducted with this regard may arise. Practical Implications - An increase in economic growth directly impact on Sukuk returns thereby maximizing the wealth of households and holding corporations. The economy can also feel the negative effect if the reverse happens. Originality/Value: This is one of the first time research is conducted using non-linear auto-regressive distributed lag NARDL to assess the impact of Sukuk issuance on economic growth with special concentration in Indonesia.