FINANCIAL INNOVATION IN STRENGTHENING ECONOMIC PERFORMANCE THROUGH INVESTMENT, TRADE OPENNESS, AND INSTITUTIONAL DEVELOPMENT

Abstract

Takaful, the Islamic insurance system, has gained significant traction in recent years, particularly in Malaysia and the Gulf States. This research seeks to examine the influence of Takaful on economic growth in the two areas under study. The study uses both qualitative and quantitative data, with econometric models augmented by expert interviews. The empirical analysis applies a data regression model to analyze Takaful penetration and GDP growth while incorporating control variables such as FDI, trade openness, and financial development. Thematic analysis is applied to analyse qualitative data to determine the major ways through which Takaful impacts economic growth. The study also quantitatively establishes Takaful penetration as a significant predictor of economic growth, with a relatively firmer positive association found in Malaysia than in the Gulf States; r = 0.62 and r = 0.58, respectively. Qualitative analysis identifies three primary mechanisms of Takaful's economic impact: financial liberalization, fundraising for investment, and managing risks. The results on the Takaful-growth relation demonstrate that institutional characteristics such as regulatory systems and market configurations play a crucial role.