International Review of Business, Trade, and Economics
The Economic Risks of Financial Speculation on the Global Economy: A Comparative Analysis between Conventional and Islamic Economic Perspectives
Abstract
Diaaeldin Mahmoud Abdel Moaty Abdel Raheem
This comprehensive paper investigates the profound economic risks and systemic harms posed by excessive financial speculation to the global economic system. It establishes a critical theoretical distinction between productive, real- economy-linked risk-sharing activities and non-productive, purely speculative financial practices that generate significant divergence between capital flows and tangible economic output. The research employs a comparative analytical framework, integrating mainstream conventional economic theory with the ethical and structural principles of Islamic economics. The analysis demonstrates how speculative excesses are primary contributors to the formation of asset price bubbles, heightened financial instability, speculative inflationary pressures, and severe capital misallocation. The study quantifies the staggering scale of speculative transactions relative to global real GDP, highlighting a deep structural imbalance. Furthermore, it conducts a rigorous evaluation of the Islamic economic paradigm—rooted in asset-backing, risk-sharing (mushārakah, muḍārabah), and the prohibition of excessive uncertainty (gharar) and pure monetary speculation (maysir)—as a viable alternative framework for financial stability. The paper concludes with a forward-looking scenario analysis on the potential macroeconomic and social outcomes of redirecting global financial activity toward productive, real-sector investments, alongside a set of integrated policy recommendations drawn from both conventional and Islamic economic thought.