The Economic Impact of Global Volatility from COVID-19 and the Russia-Ukraine War on Largest Muslim Population Countries: A Difference-in-Difference Approach

Abstract

This study examines the economic impact of global volatility from COVID-19 and the Russia-Ukraine war on the biggest Muslim population is a proxy linked to prevalence of Islamic finance systems, redistribution mechanisms (such as zakat), labour market composition, and institutional characteristics common across these economies. The treated units consist of Indonesia, Pakistan, Bangladesh, Nigeria, and Egypt, while Norway, Denmark, Finland, Sweden, and Switzerland serve as control units. Data from 2015 to 2018 for before COVID-19 and the Russia-Ukraine war and 2019 to 2022 for during (after) are analysed, focusing on variables such as real GDP, investment, consumption, trade, and Muslim population. Results indicate that the treated units experienced a significant decrease in macro-economic indicators relative to control units following periods of global economic volatility. However, inclusion of covariates such as investment, consumption, trade, and the Muslim population partially explains the observed effects. The study underscores the susceptibility of countries with large Muslim populations (given their economic, social, and demographic structures) to external economic shocks and emphasises the importance of targeted policy interventions to promote economic resilience. Recommendations include enhancing economic diversification, strengthening social safety nets, promoting trade and investment, and fostering education and innovation. Limitations regarding data reliability, generalisability, causality, and policy implications are also acknowledged.