Effects of zakat on the economic growth in selected Islamic countries: empirical evidence

Abstract

Purpose This study aims to examine the impact of zakat on the economic growth for a sample of Muslim countries. As a matter of fact, Zakat is a religious tax on wealth paid annually to specified recipients. As it leads to income redistribution and increases the aggregate demand, zakat can be a growth factor in the Islamic framework. Design/methodology/approach This paper is based on a dynamic panel data model for the purpose of investigating the role of zakat in the economic growth for a sample of eight Muslim countries during the period ranging from 2004 to 2017. The general method of moments is applied. Findings The findings provide evidence that zakat stimulates the country’s growth. Indeed, as zakat funds are directed to increase consumption, investment or government expenditure, they spur on the economic growth. Moreover, the authors come to the conclusion that more trade openness allows an increase in the real gross domestic product (GDP) per capita. However, the broad money to GDP and population growth rate seem insignificantly associated with the economic growth for the sample considered. Practical implications The findings have substantial implications for the economic policy in Muslim countries. Authorities may further rely on zakat to boost the economic growth. First, it is essential to improve the muzakki’s knowledge on zakat to increase their intention, and so their ability and willingness to pay zakat. Second, the government intervention in both zakat collect and distribution becomes mandatory. Therefore, the contribution of zakat to the economic growth will be higher. This requires better-quality services of zakat institutions. Originality/value A few studies have empirically looked into the impact of zakat on the economic growth, especially for panel data. Hence, the present study tries to enrich the literature on this topic. It creates significant evidence regarding the relevance of zakat in Muslim countries. The findings provide empirical support that zakat is an additional growth factor in the Islamic framework.