How Do Sovereign Sukuk Impact on the Economic Growth of Developing Countries? An Analysis of the Infrastructure Sector

The lack of physical and technological infrastructure, as well as the low quality of human resources, have led to very low rates of foreign direct investment in developing countries. Indeed, infrastructure projects require huge amounts of investment which governments in those countries cannot fund from their own budgets. Meanwhile, foreign loans from international financial institutions come at a high –price and with stringent conditions. Given the importance of infrastructure development for sustainable economic growth, there is a large demand in both emerging and frontier markets for a better alternative to conventional debt instruments. Although many developing countries have started using sovereign sukuk as a tool of fiscal policy in economic development, it is still difficult to find empirical studies that demonstrate the issuance of it for funding infrastructure projects as having an impact on a nation’s economy. Thus, the author endeavours to determine whether sovereign sukuk issuances in the infrastructure sector affect the economic growth of developing nations.