Investigating the impact of financial, economic, and political risks and economic complexity on sukuk market development (NARDL Approach)

Document Type : Original Article

Authors

1 Ph.D. Candidate, Department of Economics, Islamic Azad University, Zanjan Branch, Zanjan, Iran

2 Assistant Prof., Department of Economics, Islamic Azad University, Zanjan Branch, Zanjan, Iran.

3 Associate Prof., Department of Economics, Kharazmi University, Tehran, Iran.

10.61186/ijf.2024.429303.1447
Abstract
The main objective of this article is to investigate the impact of various financial, economic, and political risks and economic complexity on the development of the Sukuk market in the Iranian economy. The data required to conduct this research based on the variables of the proposed model were used from the Capital Market Central Asset Management Company, the International Country Risk Guide (ICRG) database, and the MIT University website. The data relating to 2010-2022 is seasonal, and REVIEWS 13 software was used. The model estimation results using the Nonlinear Autoregressive Distributed Lag Model Approach (NARDL) show that the negative shock of political risk reduces the development of the Sukuk market in the short and long term. The negative shock of financial risk in the long term has a negative impact on the development of the Sukuk market. The negative shock of economic complexity reduces the development of the Sukuk market in the short term. The positive shocks of political risk, financial risk, economic risk, and economic complexity in the short and long term led to the development of the Sukuk market. Among the three types of risk, political risk and financial risk have the most impact on sukuk market development. The error correction coefficient in this estimate is negative and statistically significant, which shows that 0.42% of the short-term imbalance is adjusted to reach the long-term balance every year.

Keywords


Ajide, M. Osinubi, B. Ojeyinka, B. (2023). Does the Insurance Sector Matter for Economic Complexity? Organizations and Markets in Emerging Economies, 14 (3), 536–561. https://doi.org/10.15388/omee.2023.14.4
Atlas of Economic Complexity. (2013). https://atlas.cid.harvard.edu/glossary
Boukhatem, J. (2022). How does financial risk affect sukuk market development? Empirical evidence from ARDL approach. Heliyon. 8 (5), 1-7. https://doi.org/10.1016/j.heliyon.2022.e09453
Bailey, R. (2005). The Economics of Financial Markets, Cambridge University Press. https://doi.org/10.1017/CBO9780511817458
Capital Market Central Asset Management Company. (2016). capital financing instrument (Sukuk). 1(Special Issue): 5-49. https://sukuk.ir/images/pdf/SUKUK-EBOOK-issue.pdf
Gonzalez- Gomez-, J. Uribe, J. Valencia, O. (2023). Does economic complexity reduce the probability of a fiscal crisis? World Development,168, 106250. https://doi.org/10.1016/j.worlddev.2023.106250
Hoang T., Lahiani A. & Heller D. (2016). Is gold a hedge against inflation? New evidence from a nonlinear ARDL approach. Economic Modelling, 54: 54-66. https://doi.org/10.1016/j.econmod.2015.12.013
IIFM Sukuk database. (2023). 1-202 https://www.iifm.net/frontend/general-documents/f0a12d4a6880f8e3bc23a23a03baa8e61693983390.pdf
Irawati, D. Fadhila, L. (2024), Do Underlying Assets, Duration, Default Risk Level, Sukuk Liquidity, and Profitability Affect Sukuk Yield?, International Journal of Accounting & Finance in Asia Pacific, 7 (1), 46-61.  https://doi.org/10.32535/ijafap.v7i1.2898
Khansari, R. (2018). Application of sukuk in strengthening banks' capital. Monetary and Banking Research Institute, 146: pp. 76–80.
Khezri, H., & Samimi, A. (2021). Asymmetric effects of exchange rate shocks on the money demand function in Iran. Journal of Business Quarterly, 25 (100): 1-24. https://doi.org/10.22034/ijts.2021.246917
Khalid Afifi, Z. (2024). Financial Sukuk: Concept, Legal Principles, and Types, Asian Journal of Economics, Business and Accounting, 24 (2), 98-106. https://doi.org/10.9734/AJEBA/2024/v24i21224
Mirza A.R., Sultana N. (2020). Impact of economic factors to determine the sukuk market development: an empirical analysis. Int. J. Islamic Econ. Govern,1(1): 65–83. https://doi.org/10.1108/IMEFM-03-2020-0105
Mseddi, Slim. (2023). International issuance of Sukuk and companies' systematic risk: An empirical study, Borsa Istanbul Review, 23 (3), 550–579. https://doi.org/10.1016/j.bir.2022.12.007
Nazarpour, M‌., Khazaee, A. (2010). Risk coverage of the Istisna' Sukuk in the Security Market. Economic Policies, 18: 3–26. https://doi.org/10.22096/esp.2010.26219
Panahi, M., Rezaei, A. (2021). The effect of the development of the Sukuk market on the capital adequacy ratio of Islamic banks. Iran's Economic Journal, 18 (36): 33-48. https://doi.org/10.30471/iee.2022.8073.2161
Roslen, S.N., Chua, M.-S.  Ruslan, R.A. (2024). Long-run asymmetric effects of financial risks on Sukuk market development: empirical evidence from Malaysia. Journal of Islamic Accounting and Business Research, ahead-of-print No. ahead-of-print. https://doi.org/10.1108/JIABR-08-2022-0200
Sepahvand, R., Sayeh Miri, A., Shirkhani, A. (2021). The impact of economic complexity on environmental performance in MENA countries. Economic Research Quarterly (sustainable growth and development), 21 (3): 177-208. https://dorl.net/dor/20.1001.1.17350794.1397.23.89.4.2
Shahabadi, A‌., Arghand, H. (2018). The impact of economic complexity on social welfare in selected developing countries. Iranian Journal of Trade Studies, 23(89): 89-122. https://dorl.net/dor/20.1001.1.17350794.1397.23.89.4.2
Shahabadi, A‌., Omidi, V‌., AliKaramzadeh, N. (2022). The impact of economic complexity on the exchange rate in selected knowledge-based developing countries. Economics and Modeling Quarterly, 13(1): 1-25. https://doi.org/10.29252/jem.2022.226013.1722
Sadeghi, M., Kashian, A., Samimi, A. (2014). Economics of Financial Markets. Imam Sadegh University Publications, first edition.
Suciningtias, S. (2019). Macroeconomic Impacts on Sukuk Performance in Indonesia: Co-integration and Vector Error Correction Model Approach. Journal of Islamic Finance,  8: pp. 117–130. https://doi.org/10.31436/jif.v8i0.351
Shin, M. Lung, M. Lai, Y. Jhy Lin, F. (2014). The Impact of Industrial Clusters on Human Resource and Firms Performance. Journal of Modelling in Management, 9 (2): 141-159. https://doi.org/10.1108/JM2-11-2012-0038
The International Country Risk Guide (ICRG). (2014). https://www. prsgroup.com/wp-content/uploads/2014/08/icrgmethodology.pdf
Zhu, S., & Li, R. (2016). Economic complexity, human capital, and economic growth: Empirical research based on cross-country panel data. Applied Economics, 49(38): 3815–3828. https://doi.org/10.1080/00036846.2016.1270413
Zubiri, H and Motmani, M (2020). Human capital and the complexity of the economy in Iran. QJER , 20 (3): 145-166. http://ecor.modares.ac.ir/article-18-33426-en.html
Zare, M. H., Ansari Samani, H., simin, N., & Mahmoodi, Z. (2021). The Effect of Economic, Political and Financial Risk on Capital Flight: Dynamic Panel Approach. new economy and trad, 16(1), 95-127. https://doi.org/10.30465/jnet.2021.7104
Yeap, G. P., & Lean, H. H. (2017). Asymmetric inflation hedge properties of housing in Malaysia: New evidence from nonlinear ARDL approach. Habitat International, 62: pp. 11–21. https://doi.org/10.1016/j.habitatint.2017.02.006