The Determinants of Sukuk Market Development

Abstract

The objective of this article is to empirically investigate the structural, financial, developmental, institutional, and macroeconomic determinants of Sukuk market development for a sample of 13 countries over the period 2001-2013. We employ the Generalized Method of Moments (GMM) procedure to tackle the problems of endogeneity of lagged dependent variable, heteroscedasticity, and serial correlation in the residuals. Our results suggest that a combination of structural, financial, and institutional factors seem to exert a significant effect on Sukuk markets. Indeed, larger economic size, higher proportion of Muslims in the population, better investment profile (IP), and lower corruption are associated with larger Sukuk markets, while higher interest rate spread is negatively related to Sukuk market development. Copyright 1 Taylor & Francis Group, LLC.