Examining Causality Relationships among Energy Consumption, Economic Growth and Islamic Banking System Performance in Jordan

Various studies have been conducted to examine the causal relationship between economic growth and energy consumption among the countries that export and import energy sources but the discussions on the causal relationship between Islamic banking system performance and energy consumption are still lacking. The first aim of this paper is to provide some clarifications on the causal relationship between economic growths, GDP is used as a proxy of Jordan’s economic growth and energy consumption, and also between Islamic banking system performances, and Murabaha is used as a proxy of Jordanian Islamic Bank performance and energy consumption. The second aim is to explore how far the Islamic banking system direction from the economic growth direction when affected by some macroeconomic variables such as energy consumption. Jordan has been chosen as the country under study because it heavily relied on imported energy sources to meet its needs. In order to analyze the long and short-run relationship, the annual time series data were used by employing the autoregressive distributed lag model (ARDL). Meanwhile, the Augmented Dickey Fuller (ADF) (1987) and the Ng-Perron (2001) were used for stationary test. Additionally, the Bounds F-statistics test was employed for testing co-integration among the variables. The ARDL approach was used to analyze the long-run and short-run relationships and for exploring the causal relationship among variables, the Granger causality test was employed. Results from the analyses show that the economic growth and energy consumption as well between Islamic banking system performance and energy consumption indicate unidirectional causal relationships but not vice versa. Another main finding is that Islamic banking system direction moves with the same economic growth direction in Jordan when affected by the energy consumption.

Keywords: energy consumption, GDP, Murabaha, Granger causality, Jordan