The influence of Zakat and macro variables on economic growth

Abstract

The objective of this study is to analyse the impact of Zakat distribution, inflation, consumption, and international trade on the economic growth of Indonesia using the Vector Error Correction Model (VECM) analysis. The VECM analysis comprises several tests, including the unit root test, stability test, cointegration test, and Granger causality test. This study found that consumption, exports, imports, and Zakat exert a favourable influence on economic growth; however, inflation has an adverse impact on economic growth. Zakat expenditure indicated a positive relationship with gross domestic product level in the long term. The results of the Granger causality test implied a two-way causal interconnection between Zakat expenditure and economic growth. Zakat can trigger the country’s economic expansion by increasing consumption, investment, or government spending, and an increase in national income will encourage an increase in Zakat distribution. Moreover, the augmentation of national income will foster an upsurge in the distribution of Zakat. The future tax potential is immense because the total population of Indonesian Muslim residents in 2022 is predicted to be 241.7 million people, or the equivalent of an 87.02 per cent increase.