Is there a role for Islamic finance and R&D in endogenous growth models in the case of Indonesia?

© 2020 The validity of growth models is debatable, more so in developing than in developed economies. We contribute to this debate by testing the relevance of semi-endogenous growth models in explaining Indonesia's economic growth transformation. Using historical time series data (1968 to 2018), we test growth models from a unique perspective by examining the roles of the Islamic financial market, the conventional financial system, and structural changes. We show that Indonesia's growth experience is best characterized by a semi-endogenous growth model driven by research activity and access to the financial system, particularly the Islamic financial market. We conclude that while linear models fail to support semi-endogenous growth models, nonlinear models do support them.