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2013 (7)

Death of a Metaphor: The Invisible Hand
International Journal of Pluralism & Economic Education Vol. 4(1), March 2013, p. 15-29

Models are representations of reality. They simplify and ignore many complexities in order to focus on certain aspects. With constant and repeated use, theorists sometimes confuse the model with reality. This leads to many types of errors. In this article, we argue that the metaphor of the invisible hand has become deeply entrenched in the ways of thinking about and framing of economic problems. This has led to overuse and abuse of the metaphor. Why this happened, what harm has resulted from it, and how it can be remedied is the subject of this paper.
JEL Codes: A13, B41

Islam Versus Economics
Chapter 3 in Oxford University Handbook on Islam and the Economy
edited by Kabir Hassan and Mervyn Lewis, Oxford University Press, (2013 Forthcoming)

An earlier & longer version of a draft of this paper, with title “Islamic Approaches to Fundamental Economic Problems,” is available from
The paper shows that fundamental Islamic principles regarding organization of economic affairs are directly and strongly in conflict with teachings of conventional economic theories.
Keywords: Islamic Economics, Human Development, Wealth, Waqf
JEL Codes: B29, B41

Re-Defining Islamic Economics
Chapter in Islamic Economics: Basic Concepts, New Thinking and Future Directions, Cambridge Scholars Publishing (2013, Forthcoming)

There is a huge number of definitions of Islamic Economics available in the literature. The vast majority take existing definitions from the western literature and modify them to incorporate an Islamic angle. This leads to the widespread belief that Islamic Economics is a variant or a branch of conventional economics. We argue that something can be called “Islamic” only if it is based on the Quran and Sunnah. In this paper we propose a new definition based purely and directly on Islamic ideas and sources. We show that this definition differs radically from any available in the West, as well as the vast majority of definitions proposed by Islamic Economists. It creates entirely new ways of looking at and organizing the subject matter of Economics. This paper discusses ten dimensions of contrast, where our new definition suggests that the methodology of Islamic Economics is directly opposed to western methodology.

European Transition to Secular Thought: Lessons for Muslims
to appear in Insights,Da’wah Academy

Logical Positivist Methodology and Islamic Economics
to appear in Proceedings of 2nd International Conference on Islamic Economics and Economies of Muslim Countries that Department of Economics, KENMS, IIUM, Kuala Lumpur, Malaysia held in 29-30 January 2013

We provide a detailed discussion of current methodology of economics and its emergence from secular roots in Europe. The foundational principles of this methodology, which is based on logical positivism, are in conflict with Islam. We then sketch some alternative methodologies which would be more suitable for Islamic economics.
We first describe how logical positivism emerged as the dominant philosophy of science, and how it was adopted into the foundations of economics. We then show that the current economic methodology is based on logical positivism. This philosophy is anti-Islamic, and therefore cannot be used to construct Islamic Economics. There are two main points of opposition. Logical Positivism rejects the unseen, while Islam requires faith in the unseen. Logical Positivism rejects morality as unscientific, while morality is a central part of Islamic teachings. This means that a methodology for Islamic economics must be radically different from that currently in use in conventional economic theory. Some essential elements of an alternative methodology are sketched.
Keywords: Logical Positivism, Methodology, Islamic Economics

Redefining Islamic Economics
to appear in Proceedings of the workshop on “Basic Concepts and Thoughts in Islamic Economics” held in Istanbul during 1-3 March 2013. submitted to Ninth International Conference on Islamic Economics and Finance (ICIEF) to take place in Istanbul during 9-11 September 2013

There is a huge number of definitions of Islamic Economics available in the literature. The vast majority take existing definitions from the western literature and modify them to incorporate an Islamic angle. This leads to the widespread belief that Islamic Economics is a variant or a branch of conventional economics. We argue that something can be called “Islamic” only if it is based on the Quran and Sunnah. In this paper we propose a new definition based purely and directly on Islamic ideas and sources. We show that this definition differs radically from any available in the West, as well as the vast majority of definitions proposed by Islamic Economists. It creates entirely new ways of looking at and organizing the subject matter of Economics. This paper discusses ten dimensions of contrast, where our new definition suggests that the methodology of Islamic Economics is directly opposed to western methodology.
Elsewhere, I have argued that Islamic Economics is currently in crisis; this has been widely acknowledged by leaders in the field. Conventional views are that Islamic Economics must be a compromise between Islamic ideals embodied in homo islamicus, and realistic views embodied in homo economicus. However, there is substantial disagreement on the nature and extent of the compromise required. Consensus on defining “Islamic Economics” appears to be a pre-requisite for progress. I believe that a definition which can be justified purely and directly from Islamic sources will be able to command consensus that compromises cannot. Furthermore, this definition opens the way to radically new approaches, which can fulfill the promise initially held out by Islamic Economics. This (now largely forgotten) promise was that Islamic Economics will provide justice, and eliminate oppression and inequities associated with capitalist, communist and socialist economic systems.
Keywords: Islamic Economics, Definition

Directions for Muslim Scholars in Social Sciences
to appear in Proceedings of Third Arab-Turkish Congress of Social Sciences, May 2013, Istanbul

Abstract: The European Enlightenment led to the development of several views which are incompatible with Islam. This article discusses and rebuts three of these views. The first is the Enlightenment Myth, according to which light of reason first dawned in Europe in the sixteen century. The second is the Deification of Science, according to which scientific knowledge is the most certain and superior type of knowledge. The third is the myth that European have progressed to the apex of civilization. it is an urgent need of Muslim scholars to develop alternative methods and subject material s for the education of Muslim children.

2012 (6)

Methodological Mistakes and Econometric Consequences
published in International Econometric Review, Sep. 2012, Vol. 4, Issue 2, p.99-122.

Abstract: Econometric Methodology is based on logical positivist principles. Since logical positivism has collapsed, it is necessary to re-think these foundations. We show that positivist methodology has led econometricians to a meaningless search for patterns in the data. An alternative methodology which relates observed patterns to real causal structures is proposed.
Key Words: Econometric Methodology, logical positivism, realism, causality, VAR models, Forecasting, surprise, goodness of fit.
JEL Classifications: C18, B40

Response to Comments on ‘Crisis in Islamic Economics
Rejoinder, Journal of King Abdulaziz University: Islamic Economics, 25: 2, p.227-250,(Sept.  2012)

Crisis in Islamic Economics: Diagnosis and Prescriptions
Discussion Paper, Journal of King Abdulaziz University: Islamic Economics, 25: 1 ,(April/May 2012)

Abstract: There is substantial evidence that the development of the discipline of Islamic Economics is currently in crisis. In this article we argue that the main reason for this is that most Muslim economists have accepted too many of the ideas of Western economists uncritically. The methodological framework, and underlying assumptions are wrong, and in conflict with Islamic views. This conflict has not been recognized, and the attempt to combine contradictory bodies of knowledge has failed. We also present alternative foundations on which a genuine Islamic economic theory could be constructed.
Keywords: Islamization of Knowledge, Islamic Economics, Economic Methodology

An Islamic Critique of Neoclassical Economics
Pakistan Business Review, April 2012

The Empirical Evidence Against  Neoclassical Utility Theory: A Review of the Literature
[with Mehmet Karacuka] International Journal for Pluralism and Economics Education Vol. 3 (4)  2012, p 366-414

Abstract: Current Economics Textbooks and Economists justify a theory of consumer behavior based on utility maximization on a priori grounds. This methodology follows Lionel Robbins’ idea that economic theory is based on logical deduction from postulates which are “simple and indisputable facts of experience.” Strong evidence has emerged from many different lines of research that these “simple and indisputable facts of experience” are contradicted by human behavior. In this article, we summarize some of main contradictions between predictions of utility theory and actual human behavior. Efforts to resolve these contradictions continue to be made within orthodox frameworks, but it appears likely that a paradigm shift is required

The Normative Foundations of Scarcity
Real-World Economics Review, issue no. 61, 26 September 2012, pp. 22-39

Abstract: Since Robbins (1932) influential essay on the methodology of economics, scarcity has been taken as the fundamental economic problem. We will argue that this is based on a tacit assumption of primacy of property rights. We illustrate how differing ethical commitments on part of a society lead to differing formulations of the fundamental economic problem.


Power/Knowledge and Economic Theories

Published in: Lahore Journal of Policy Studies. vol 4, No 1, p. 71-78, 2011
Abstract: It is widely believed that human knowledge represents valuable information about the world we live in. Historical studies of Michel Foucault led to the striking conclusion that human knowledge cannot be separated from the power configurations governing society. In this paper, we study how economic theories are shaped by socio-political power.

2010 (6)

Anti-Poverty Policies and Anti-Poor Philosophies

Published in: Journal of Business and Economics Vol 2 Number 2 July-December 2010
In this paper, the many policies, philosophies, and theories which claim  to help the poor, but actually hurt them are discussed. The most prominent recent example is that of the SAP’s. According to an independent evaluation by Mr. Fantu Cheru (2001), the Structural Adjustment Programs (SAP’s) of the  IMF  and  the  World  Bank  designed  to  generate  growth  and  alleviate poverty have had the opposite effect.

The Rise and Fall of the Market Economy

Published in: Review of Islamic Economics, Vol. 14, No. 2, 2010, pp. 123–155
Abstract: The core economic functions of production and distribution of goods can be handled by many different methods. After the fall of communism, the market mechanism has become nearly universal. Conventional economic theories argue that this is natural, because it is the best and the most efficient method for organizing economic affairs in a society. This paper, based on the analysis of Polanyi (1944) and Klein (2008) argues that the opposite is true. Market mechanisms conflict with natural mechanisms for production and exchange in traditional societies. Unregulated markets cause tremendous damage, as can be witnessed today in terms of countless economic crises, wars, environmental destruction, as well as damage to social networks. Because of this damage, market societies can only be maintained by force, as well as disinformation. To resolve crises on myriad fronts caused by the unregulated market, it is the need of the hour to find viable alternatives.

Variance Estimates and Model Selection,” with Sidika Basci & Arzdar Kiraci

Published in: International Econometrics Review, vol 2. no 2, 2010
Abstract: The large majority of the criteria for model selection are functions of the usual variance estimate for a regression model. The validity of the usual variance estimate depends on some assumptions, most critically the validity of the model being estimated. This is often violated in model selection contexts, where model search takes place over invalid models.
A  cross  validated  variance  estimate  is  more  robust  to  specification  errors  (see,  for example, Efron, 1983). We consider the effects of replacing the usual variance estimate by a cross validated variance estimate, namely, the Prediction Sum of Squares (PRESS) in the  functions  of  several  model  selection  criteria.  Such  replacements  improve  the probability of finding the true model, at least in large samples.
Keywords:  Autoregressive Process, Lag Order Determination, Model Selection
Criteria, Cross Validation
JEL Classifications: C13, C15, C22, C52

Tests for Structural Change, Homogeneity, and Aggregation” (joint with Esfandiar Maasoumi & Mumtaz Ahmed).

Published in: Economic Modelling, 2010.
Abstract: Structural change can be considered by breaking up a sample into subsets and asking if these can be aggregated or pooled. Strategies for constructing tests for aggregation and structural change in this setting have not received sufficient attention in the literature. Our methodology for testing generalizes to multiple regimes a discussion of Pesaran et al. (1985) for the case of two regimes. This treatment permits a unified approach to a large number of testing problems discussed separately in the literature, as special cases or as parts of a test of homogeneity. We also provide a simple alternative to much more complex testing strategies currently being researched and developed in testing for structural change.
Keywords: Structural change, Aggregation

Islamic Economics: A Survey of the Literature,” Religion and Development Research Programme, Working Paper 22, Univ. of Birmingham, 2008,

Published in: Islamic Studies, IRI Journal, 2010
Abstract: A central thesis of this paper is that social science is the study of human experience, and hence is strongly conditioned by history. Modern Western political, economic and social structures have emerged as a consequence of the repudiation of religion associated with the Enlightenment and are based on secular principles. Many of these are discordant with Islamic principles and cannot be adapted to an Islamic society.  Around the middle of the twentieth century Muslim societies successively achieved freedom from colonial rule where-after they sought to construct their collective institutions in conformity with the teachings of Islam. The development of Islamic economics is part of this process of gaining freedom from the stranglehold of Western colonial institutions. This paper is a survey of the literature on Islamic economics which focuses on the contrasts between Western economic theories and Islamic approaches to the organization of economic affairs.

Causal Relations via Econometrics

Published in: International Econometrics Review, vol 2, no. 1, 2010.
Abstract: Applied econometric work takes a superficial approach to causality. Understanding economic affairs, making good policy decisions, and progress in the economic discipline depend on our ability to infer causal relations from data. We review the dominant approaches to causality in econometrics, and suggest why they fail to give good results. We feel the problem cannot be solved by traditional tools, and requires some out-of-the-box thinking. Potentially promising approaches to solutions are discussed.
Keywords: Causality, Regression, Exogeneity, Hendry methodology, Natural experiments
JEL Classifications: C, C5, C59

2009 (5)

Critical Mission of the Muslim Economist

Published in: La_Riba, Jurnal Ekonomi Islam, Vol 2, No. 1, Juli 2008, Universitas Islam, Indonesia, also in Pakistan Management Review, 2nd Qtr. 2009

Corruption: Measuring the Unmeasurable,” (joint with Faiz-ur-Rahim)

Published in: Humanomics, Vol 25, number 2, June 2009, p 117-126.
Purpose– The purpose of this paper is to argue that corruption is inherently unmeasurable. Measures of corruption produced by different sources are highly unsatisfactory. Useful measures may be possible for specific purposes in limited contexts. Reasons why highly unsatisfactory measures are in use have to do with politics and power, rather than utility of these measures.
Design/methodology/approach– The paper shows that different dimensions of corruption cannot be reduced to a single number without serious loss of information. For example the number and size of bribes cannot be reduced to a single index. The difference between perceptions of corruption and the reality also makes most popular indices useless.
Findings– The paper shows that commonly used measures of corruption are useless for their ostensible purposes. Evidence is presented that they are calculated and used for political purposes. In particular, they provide convenient excuses for the widespread failure of the structural adjustment
programs of IMF and World Bank.
Originality/value– The paper’s findings cast doubt on the vast amount of research which takes the corruption measures as objective and factual, and attempts to find causal factors for corruption, as well as effects of corruption on growth and other variables.
Keywords:Corruption, Perception, Quantitative methods
Paper type:Conceptual paper

Origins of Western Social Science

Published in: Journal of Islamic Economics, Banking and Finance, vol 5, number 2, May-August 2009, p. 9-22
Abstract: On the whole, Muslims have accepted Western claims that both social sciences and physical sciences are equally fact and logic based, and “positive” descriptions of reality. In fact, Western formulations of social sciences hide ethical and social commitments to secular views which conflict the Islamic views. Widespread acceptance by Muslims of these false claims to factuality and objectivity has prevented the development of genuine Islamic alternatives, and has been a serious obstacle to progress in the project of “Islamization of Knowledge”. The goal of this paper is to examine the origins of Western Social Science, and to show how it is based on secular preconceptions antithetical to Islam.

The Limits of Market Economy

Published in: entry in Encyclopedia of Islamic Economics,to appear.

Islamic Attitude towards Motives, Incentives of of Economic Agents and the Role of Information”

Published in: entry in Encyclopedia,” Draft of Entry for Encyclopaedia of Islamic Economics,to appear. 27 Oct. 2009, revised 9 Dec. 2009

2008 (2)

Experiences of IIIE:  1983-2007

Conference Papers, The 7th International Conference in Islamic Economics: Thirty Years of Research in Islamic Economics, Jeddah: 1-3 April 2008, pp. 123-134
Abstract: At  the  dawn  of  the  fifteenth  century  Hijri,  two  universities  International Islamic  University  of  Islamabad  (IIUI)  and  International  Islamic  University  of  Malaysia  (IIUM)  were  launched  with  the  mission  of  integrating  the  Islamic  world view  and  all  modern  branches  of  knowledge.  An  important  portion  of  this  mission was  the  production  of  a  body  of  knowledge  to  be  known  as  “Islamic  Economics.”
This would provide an alternative to conventional moderneconomic theory which is based on interest and on the concept of homo economicus, both of which are alien to Islamic  ideals.  The  object  of  this  note  is  to  review  the  experience  of  International Institute  of  Islamic  Economics  (IIIE),  one  of  the  key  departments  of  IIUI.  Our  goal is  to  learn  from  this  experience  so  as  to  advance  the  project  more  efficiently  in  the future.  We  will  discuss  the  successes  so  as  to  be  able  to  build  on  them,  and  also  the failures, so as to avoid them.

Improving Social Science Education in Pakistan

Published in: Lahore Journal of Policy Studies Vol. 2 No. 1, June 2008.
Abstract: How do we arrest the decline of the social sciences in Pakistan? Is it a matter of money or one of sending more students to the West who might then return to teaching at the local universities? In this article I argue that the solution lies elsewhere. Borrowing frames, concepts, and analytical techniques based on the concept of universalism runs a serious risk of imposing alien views on local problems. Moreover, attempts to become ‘scientific’ require side stepping value judgments of good and bad. The current Western domination of the intellectual scene favours a single route for social science development, and kills all diversity. However, whilst we may borrow as much as we choose, we need to build our own frames that would underpin the social sciences, and this is possible only by reconnecting with our own past.

2007 (2)

Response to Comments on Towards a New Paradigm for Economics,” Journal of King AbdulAziz University: Islamic Econ., Vol 20, No. 1,p. 73-82 (2007 AD/1428 AH)

An Islamic Worldview: An Essential Component of an Islamic Education,” Lahore Journal of Policy Studies Vol. 1 No. 1, p95-106, June 2007.

2006 (2) 

Islamic Economics: Problems and Prospects,” Market Forces, Journal of Management, Informatics and Technology, Vol 2 No. 1, pp. 46-53 April 2006

Response to Comments on “Islamic Economics: Problems and Prospects,” Market Forces, Journal of Management, Informatics and Technology, Vol 2 No. 3 pp. 233-240, October 2006.

2005 (3)

Robust tests for normality of errors in regression models.” (joint with A. Özlem Önder)
Economics Letters, Volume 86, Issue 1, January 2005, Pages 63-68

Efficiency Wage Hypothesis – the case of Pakistan.” (joint with Syed Kanwar Abbas),   Pakistan Development Review, Vol 44  number 4, Winter 2005, 1051-1066

Towards a New Paradigm for Economics,” Journal of King AbdulAziz University: Islamic Econ., Vol. 18, No. 2, pp. 49-59 (2005 A.D/1426 A.H)

2003 (2)

Tests for Normality Based on Robust Regression Analysis,” (joint with Asiye Ozlem-Onder) p. 296-306 in Developments in Robust Statistics: International Conference on Robust Statistics 2001,eds. Dutter, R  Filzmoser, P, Gather, U and Rousseeuw, P., Springer-Verlag, Germany, 2003 [final version]

Measuring the Systematic Risk of IPO’s Using Empirical Bayes Estimates in the Thinly Traded Istanbul Stock Exchange,”  (joint with Gulnur Muradoglu and Mehmet Orhan) International Journal of Business Vol 8, No. 3 Summer 2003, 315-334

2002 (1)

Maximum Likelihood Estimates for the Hildreth-Houck Random Coefficients Model,”  Econometrics Journal.Vol 5. No.1, p237-262, 2002


Econometric Applications of High Breakdown Regression Estimators,”  with  Peter J.  Rousseeuw & Mehmet Orhan, Economic Letters (71)  2001 pp.1-8

2000 (3)

The Inconsistency of the Breusch-Pagan Test ,”  Journal of Economic and Social Research  Vol 2, number 1, pages 1-11, 2000.

A Method for Detecting Structural Breaks and an Application to Turkish Stock Markets,” (with Erdem Basci & Sidika Basci) METU Studies in Development, Vol. 27, number 1-2, pages 35-45, 2000
Interest and the Modern Economy,”    The Lahore Journal of Economics, Vol 6, No.1, p113-127, Jan-June 2001 also published in Islamic Economic Studies Vol. 8, No. 2, Muharram 1422H (April 2000) p 61-74

1998 (1)

Effects of Skewness and Kurtosis on Model Selection Criteria,” (with Sidika Basci),  Economic Letters Vol 59 pages 17-22, 1998.

1994 (1)

Interindustry Variation in the Costs of Job Displacement,” (with William J. Carrington),  Journal of Labor Economics Vol. 12, number 2, pages 243-275, April 1994.

1992 (2)

“Towards Foundations for an Islamic Theory of Consumer Behavior,” in Readings in Microeconomics: An Islamic Perspective, edited by Sayyid Tahir, Aidit Ghazali, and Syed Oman Syed Agil, Longman Malaysia, Kuala Lumpur, 1992.

Decomposition of Growth Trends in Agriculture: Another Approach” (with Haroon Jamal), Indian Journal of Agricultural Economics, Vol 47, No 4, 1992

1991 (1)

Asymptotic Suprema of Averaged Random Functions.” Annals of Statistics, Vol. 19, No. 4, pp. 2145-2159, 1991.

1989 (3)

Consistency Via Type 2 Inequalities:  A Generalization of Wu’s Theorem,” Econometric Theory, Vol. 5, pp. 272-286, 1989.

Investment and Income distribution pattern under Musharka Finance: the certainty case,” (with Shameem Siddiqui) Pakistan Journal of Applied Economics, Vol. 8 No. 1, Summer 1989.

Investment and Income distribution pattern under Musharka Finance: the uncertainty case,” (with Shameem Siddiqui) Pakistan Journal of Applied Economics, Vol. 8 No. 1, Summer 1989.

1988 (1)

A Type 2 Inequality for Function of Bounded Variation.” Journal of Multivariate Analysis, Vol. 24, No. 1, pp. 53-55, 1988.

1987 (2)

On the Impossibility of Events of Zero Probability.” Theory and Decision, Vol. 23, pp. 157-159, 1987.

Short-term Forecasting:  An Application of Box-Jenkins Methods–A Reply.” (with A. H. Shaikh), Pakistan Journal of Applied Economics, Vol. 6, No. 2, pp. 125-129, 1987.

1986 (1)

Microfoundations for the Basic Needs Approach To Development: The Lexico-graphic Utility Function.”  Pakistan Journal of Applied Economics, Vol. 5, No. 1, pp. 1-11, 1986.

1985 (2)

Admissibility of the Maximum Likelihood Estimate of the Reciprocal of a Normal Mean with a Class of Zero-One Loss Functions.” Sankhya, Volume 47, Series A, Part 2, pp. 239-246, 1985.

Best Invariant Estimation of a Direction Parameter with Application to Linear Functional Relationships and Factor Analysis.” (with T. W. Anderson and Charles Stein). Annals of Statistics, Vol. 13, No. 2, pp. 525-533, 1985.

1984 (1)

Avoiding Model Selection by the Use of Shrinkage Techniques.” Journal of  Econometrics, Vol. 25, pp. 239-246, 1984.

1983 (1)

Forecasting Without Theory:  The Case of Pakistan’s Exports of Rice and Cotton.” (With Abdul-Hafeez Sheikh) Pakistan Journal of Applied Economics, Vol. 1, No. 2, pp. 65-83, 1983.

1982 (1)

General Admissibility and Inadmissibility Results of Estimation in a Control Problem.” (With J. O. Berger and L. M. Berliner) Annals of Statistics, Vol. 10, No. 3, pp. 838-856, 1982.

1981 (2)

Estimators Without Moments:  The Case of the Reciprocal of a Normal Mean.” Journal of Econometrics, Vol. 15, No. 2, pp. 289-298, February 1981.

A Complete Class Theorem for the Control Problem, and Further Results on Admissibility and Inadmissibility.” Annals of Statistics, Vol. 9, No. 4. pp. 812-821, July 1981.


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