Institutional Quality and Islamic Economy Performance: Evidence From Leading Islamic Economies

Kholilatul Khusni; M. Bastomi Fahri Zusak

doi:10.55927/mudima.v6i10.140

Authors

Kholilatul Khusni Universitas Diponegoro.
M. Bastomi Fahri Zusak Universitas Diponegoro

DOI:

https://doi.org/10.55927/mudima.v6i10.140

Keywords:

Institutional Quality, Islamic Economy Performance, Worldwide Governance Indicators, Global Islamic Economy Indicator, Rule of Law.

Abstract

This study examines the relationship between institutional quality and Islamic economy performance across 13 leading Islamic economies. Using a balanced panel dataset comprising 130 country-year observations over a ten-year period, the study investigates six dimensions of the Worldwide Governance Indicators (WGI): Voice and Accountability, Political Stability, Government Effectiveness, Regulatory Quality, Control of Corruption, and Rule of Law. Islamic economy performance is measured using the Global Islamic Economy Indicator (GIEI). Panel data regression is employed, with the Fixed Effects Model selected based on the Hausman specification test at the 10% significance level. The empirical findings reveal that Rule of Law is positively and significantly associated with Islamic economy performance, highlighting the importance of legal certainty and effective institutional enforcement. Conversely, Voice and Accountability and Government Effectiveness exhibit negative and statistically significant relationships, suggesting that improvements in general governance do not necessarily translate into stronger Islamic economic outcomes. Political Stability and Regulatory Quality show statistically insignificant relationships, while the findings for Control of Corruption vary across model specifications. These results demonstrate the multidimensional and context-dependent nature of institutional quality in shaping Islamic economy performance. The study contributes to the literature by extending institutional analysis beyond Islamic finance to the broader Islamic economic ecosystem. The findings emphasize the importance of integrating legal certainty, sector-specific regulatory frameworks, and effective Shariah governance into Islamic economic development strategies

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