Economic Effects in Islamic Stock Development of the European Countries

Abstract

The purpose of this chapter is to understand whether economic growth and inflation rate have an effect on the development of Islamic stock market. Within this context, quarterly data of 13 European countries for the periods between 2002:2 and 2016:3 are analyzed with Dumitrescu Hurlin panel causality test. It is concluded that inflation rate and economic growth have a significant effect on the development of Islamic stock market. Because economic growth affects private investment in the country, it has an important impact on the development of Islamic stock exchange. Additionally, inflation rate is accepted as the main cause of Islamic stock market development because it increases uncertainty in the market. Hence, it can be said that countries should focus on the policies to decrease high inflation rates and increase economic growth. With the help of these kind of actions, it will be possible to improve Islamic stock market in the country. Because companies, which are included in Islamic stock market, have to obey ethical rules, it will improve the performance of the economies as well.