Essays on the Role of Knowledge on Economic Growth, Banking Performance and the Institutional Emergence of Islamic Banks

Abstract

Knowledge at every stage of history has played a substantial role to determine economic progress and wealth creation of societies and is central to economic and social development. By developing a critical perspective on the role of knowledge played in economic and institutional performance alongside developing and leading organisations as an institutional base this research responds to, and develops each of these aspects via three essays.
The first essay explores the relationship between a knowledge-based economy and economic performance in the GCC countries through empirical analysis within a political economy frame. After identifying the necessary pre-requisites to forming a theoretical framework for a knowledge-based economy in the GCC states, an empirical analysis is employed applying a quantitative methodology by constructing a knowledge economy performance through the Granger Causality modelling panel data tests of six GCC countries during 2006-2015, by following the World Bank’s measurement method. The results show that GCC countries still possess insufficient local human capital and technology production to contribute to their economic performance, as they remain reliant on importing human capital and technology. Therefore, the lack of creative and highly-skilled human capital remains a significant barrier to developing knowledge-based economies and attendant transformation for the post-petroleum era in the region.
The second essay aims to evaluate the impact of intellectual capital of Islamic and conventional banks in terms of human capital, knowledge creation, and innovation processes on the financial performance of banks in the GCC countries by comparison with conventional banks in the realm of ‘what ought to be’ in an Islamic banking system regarding what constitutes an Islamic understanding of creating knowledge and human capital. Together with theoretical discussion, there are two empirical analyses which examine the relationship between intellectual capital and the financial performance of banks in the GCC states. An initial empirical section is based on assessing a Value Added Intellectual Coefficient (VAIC) model utilising a secondary data constituted panel of five GCC countries comprising 19 Islamic banks and 29 conventional banks covering the 2012-2016 period. A second empirical element conducts a disclosure analysis using a panel of five GCC countries examining 225 annual reports from 21 Islamic banks and 24 conventional banks covering the years - 2012-2016. The main finding of this essay is that being an Islamic bank is not significant for creating intellectual capital in banks, although knowledge creation, human capital, intellectual contribution provides prior issues intrinsic to the methodology of Islamic economics. This result, therefore, relates to the emergence process of Islamic banking institutions.
A third essay studies the role of knowledge on the emergence of Islamic banks as an institution by referring to the ontological source of Islamic economics through critical discourse analysis. The essay argues that the emergence process of Islamic banking institutions fulfils the criteria of institutional innovation or grafted institutions within the logic of conventional banks through a mimicking and mirroring process rather than constituting an organic emergence within the society. An exploration is offered detailing the organic emergence models of institutions through proposing a conceptual model. Further investigation highlights the conceptual framework of Islamic banking institutions via referral to ontological sources of knowledge in Islam. Insight developed here illuminates an authentic emergence of Islamic banking institutions towards becoming hybrid institutions or grafted institutions through mimicking and mirroring processes deployed by existing institutions. Conclusions suggest that Islamic banks can be considered as an institutional innovation rather than offering an alternative trajectory as types of organic emergence. Neither do Islamic banks provide alternative institutions to those currently existing. In fact, they personify the prevailing system typifying grafted institutions created via external pressure from national and international regulatory organisations.