Foreign direct investment and Islamic development bank financing: evidence from Uzbekistan

This study investigates the relationship between foreign direct investment (FDI) inflows and Islamic Development Bank (IsDB) financing in Uzbekistan’s reforming economic environment. Despite rising FDI inflows and growing engagement with Islamic development finance, their interplay in Uzbekistan remains insufficiently examined. The analysis employs econometric modelling based on cointegration, using annual time-series data from 2003 to 2023 on FDI net inflows and annual approved financing from the IsDB. Given the still-limited development of Islamic finance in Uzbekistan, IsDB financing is used as a narrow institutional proxy for Sharia-compliant development finance rather than as a measure of the full Islamic finance ecosystem. The results indicate a positive and statistically significant long-run relationship between FDI inflows and IsDB financing. However, due to the limited effective sample size in the ECM estimation and the narrow proxy used, the results should be interpreted as exploratory evidence of association rather than causality.