Heterogeneous macroeconomic associations with Islamic banking development in OIC countries via semiparametric panel quantile methods

This study investigates the heterogeneous macroeconomic relationships associated with Islamic banking development across Organisation of Islamic Cooperation (OIC) countries. It addresses a gap in the literature by employing a distribution-sensitive panel quantile regression approach that captures country-specific variation in macroeconomic associations with Islamic banking development. Annual panel data from 11 OIC countries covering the period 2013–2024 are used to examine how inflation, GDP per capita, exchange rates, and exports are associated with Islamic banking development, measured by total Islamic banking assets. The results reveal substantial heterogeneity across the distribution of Islamic banking development. Inflation is positively and significantly associated with Islamic banking assets at the lower and median quantiles, while GDP per capita and exchange rates are significant only at the median quantile. Exports are positively associated with Islamic banking development at the lower and median quantiles but become insignificant in more mature Islamic banking markets. These findings demonstrate that macroeconomic conditions are associated with Islamic banking development in distribution-specific rather than uniform ways, highlighting the limitations of conventional mean-based approaches. The study contributes to the literature by providing evidence that macro-financial relationships vary across stages of Islamic banking development and offers policy implications for designing stage-specific macroprudential and financial development strategies across OIC countries.