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International Journal of Islamic Economics and Business Sustainability (IJIEBS)

Abstract

Islamic financial inclusion is recognized as a key factor in achieving sustainable development, yet its causal relationship with development outcomes remains underexplored, particularly in the context of Indonesian provinces. This study aims to analyze the impact of Islamic financial inclusion measured through accessibility, availability, and usage on sustainable development indicators, including economic growth, unemployment, and poverty rates, across 33 Indonesian provinces from 2014 to 2022. The research contributes to the literature by providing empirical evidence on the role of Islamic financial inclusion in supporting sustainable development within a developing country context. Using the Panel Vector Error Correction Model (VECM) model, the study examines the short-term and long-term dynamic relationships between these variables. Findings reveal a unidirectional causality from macroeconomic variables to dimensions of Islamic financial inclusion, with no strong evidence that financial inclusion significantly influences macroeconomic outcomes. This suggests that while financial inclusion efforts are underway, they have yet to make a substantial impact on sustainable development. The results underscore the need for targeted policies to enhance accessibility and usage of Islamic financial services to accelerate the achievement of the Sustainable Development Goals (SDGs).

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