Causal Relationship Between Islamic and Conventional Banking Instruments in Malaysia

The Islamic banking industry makes significant contributions to the economic development process in Muslim countries. It offers an alternative, profit and loss sharing set of tools and products to conventional economies. An alternative econometric procedure can determine the Islamic and conventional deposit returns linkages. This involves a unit-root test and Granger causality test. The main purpose of these tests is to determine the impact of a fluctuation in one type of deposit returns on other. This helps to assess the role of the Islamic banking industry in the overall monetary distributional channels in a country.