A Dynamic Investment Model with Profit-Sharing in an Interest-Free Economy

The present paper is a contribution to the building blocks of an investment model within the framework of an integrated macroeconomic model of an Islamic economy. Investment behavior in the model is guided by an Islamicethical value system and profit-sharing financial contracts. The typical firm’s...

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Autor principal:	Zaidi Sattar
Formato:	article
Lenguaje:	EN
Publicado:	International Institute of Islamic Thought 1991
Materias:	Islam BP1-253
Acceso en línea:	https://doaj.org/article/e5ec1cdbde0649938b7a4d9580a5653e
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spelling	oai:doaj.org-article:e5ec1cdbde0649938b7a4d9580a5653e2021-12-02T17:26:09ZA Dynamic Investment Model with Profit-Sharing in an Interest-Free Economy10.35632/ajis.v8i1.26472690-37332690-3741https://doaj.org/article/e5ec1cdbde0649938b7a4d9580a5653e1991-03-01T00:00:00Zhttps://www.ajis.org/index.php/ajiss/article/view/2647https://doaj.org/toc/2690-3733https://doaj.org/toc/2690-3741 The present paper is a contribution to the building blocks of an investment model within the framework of an integrated macroeconomic model of an Islamic economy. Investment behavior in the model is guided by an Islamicethical value system and profit-sharing financial contracts. The typical firm’s investment decision is believed to emerge from a dynamic inter-temporal maximization exercise within an infinite time horizon. The method of Calculus of Variations is applied to arrive at the optimal investment and employment criteria for the firm. The result is then incorporated into a macroeconomic model to study the behavior of key endogenous variables like national income and the rate of profit-share. Comparative statics exercised within a general equilibrium framework reveal the potency of monetary policy but the neutrality of fiscal policy with respect to output and employment. Introduction The past decade has witnessed a tremendous outpouring of interest as well as effort in the formalization of economic models based on profit-sharing financial arrangements as an Islamic alternative to the conventional interestbased economic system. Several macroeconomic models for interest-free economies have been proposed (Anwar 1987; Habibi 1987; Metwally 1981 & 1983). The rigor of an integrated approach to such macroeconomic modelhg depends on the rigor of the component models, namely, the consumption, investment, monetary, and fiscal relationships. Economists have written extensively on different aspects of consumer behavior in Islamic societies. Kahf (1978) and Khan (1984), among others, have contributed to the conceptual and analytical formulation of the consumption function under ... Zaidi SattarInternational Institute of Islamic ThoughtarticleIslamBP1-253ENAmerican Journal of Islam and Society, Vol 8, Iss 1 (1991)
institution	DOAJ
collection	DOAJ
language	EN
topic	Islam BP1-253
spellingShingle	Islam BP1-253 Zaidi Sattar A Dynamic Investment Model with Profit-Sharing in an Interest-Free Economy
description	The present paper is a contribution to the building blocks of an investment model within the framework of an integrated macroeconomic model of an Islamic economy. Investment behavior in the model is guided by an Islamicethical value system and profit-sharing financial contracts. The typical firm’s investment decision is believed to emerge from a dynamic inter-temporal maximization exercise within an infinite time horizon. The method of Calculus of Variations is applied to arrive at the optimal investment and employment criteria for the firm. The result is then incorporated into a macroeconomic model to study the behavior of key endogenous variables like national income and the rate of profit-share. Comparative statics exercised within a general equilibrium framework reveal the potency of monetary policy but the neutrality of fiscal policy with respect to output and employment. Introduction The past decade has witnessed a tremendous outpouring of interest as well as effort in the formalization of economic models based on profit-sharing financial arrangements as an Islamic alternative to the conventional interestbased economic system. Several macroeconomic models for interest-free economies have been proposed (Anwar 1987; Habibi 1987; Metwally 1981 & 1983). The rigor of an integrated approach to such macroeconomic modelhg depends on the rigor of the component models, namely, the consumption, investment, monetary, and fiscal relationships. Economists have written extensively on different aspects of consumer behavior in Islamic societies. Kahf (1978) and Khan (1984), among others, have contributed to the conceptual and analytical formulation of the consumption function under ...
format	article
author	Zaidi Sattar
author_facet	Zaidi Sattar
author_sort	Zaidi Sattar
title	A Dynamic Investment Model with Profit-Sharing in an Interest-Free Economy
title_short	A Dynamic Investment Model with Profit-Sharing in an Interest-Free Economy
title_full	A Dynamic Investment Model with Profit-Sharing in an Interest-Free Economy
title_fullStr	A Dynamic Investment Model with Profit-Sharing in an Interest-Free Economy
title_full_unstemmed	A Dynamic Investment Model with Profit-Sharing in an Interest-Free Economy
title_sort	dynamic investment model with profit-sharing in an interest-free economy
publisher	International Institute of Islamic Thought
publishDate	1991
url	https://doaj.org/article/e5ec1cdbde0649938b7a4d9580a5653e
work_keys_str_mv	AT zaidisattar adynamicinvestmentmodelwithprofitsharinginaninterestfreeeconomy AT zaidisattar dynamicinvestmentmodelwithprofitsharinginaninterestfreeeconomy
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A Dynamic Investment Model with Profit-Sharing in an Interest-Free Economy

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