Private investment: its determents and its directors In an Islamic Economy, A comparative study

Abstract: In an effort to explore an Islamic conception of the fundamental relationships among macroeconomic variables—foremost among them private investment—this study adopts an abstract theoretical approach as a modest contribution to formulating an economic theory consistent with the Islamic economic doctrine.

Within this framework, the research analyzes the effects of Islamic rulings and values in a hypothetical Islamic economy. It highlights the implications of prohibiting ribā (interest), imposing zakāt, and forbidding hoarding, all of which necessitate the mobilization of idle capital. It also examines the effects of the distributive system and the regulation of consumption in expanding market size, thereby generating effective and growing demand that stimulates and sustains investment. Furthermore, the study considers the impact of these dynamics on the elasticity of aggregate supply.

The paper also shows that Islamic rulings and values direct private investment, first through the profit motive regulated by Shariah principles, and second through the broader framework of Shariah-oriented policy. A preliminary assessment of these rulings and values in an Islamic economy indicates: (1) a higher level of investment, (2) greater stability of investment flows, protecting the economy from business cycles, and (3) alignment of investment with the genuine needs of society, provided that the Islamic economic doctrine is observed.

Keywords: Private Investment, Islamic Economics, Ribā, Zakāt, Hoarding, Aggregate Supply