The Link Between Green Sukuk and Financial Development

Abstract

Although financially developed countries play pioneering roles on the innovative financial instruments, whether high level of financial development leads to a wider range of instruments or having a wider range of instruments leads countries to financially develop has not been fully discovered. Especially for the countries that adapt Islamic financial instruments, the relation between financial development and green financial instruments is still not known. In this context, the objective of this chapter is to investigate whether there is a significant lead/lag relationship between financial development and issuance of green sukuk. While initial results show that countries that are already financially developed are more eager to issue green sukuk, a detailed investigation on the nature of the lead/lag relation reveals that green sukuk issuance leads financial institutions to be more accessible and financial markets to have more depth.