what are the merits and demerits of Islamic economic system?

Have you bothered thinking about this at all?

The essence of the Islamic economic regulations are "full responsibility and participation". This is sometimes seen as "no loans" because you can't just lend money, sit back and collect the payments, and have nothing else to do with the enterprise. If you provide money to an enterprise, you can benefit from the gains only if you also partake of the losses.

On the one hand, this makes investment more of a responsibility than it is in Western economics. That means people do tend to invest less.

On the other hand, when they do invest, they tend to take a more active role in their investment - you don't have the hands-off management capitalism of the West (where owners have no real say in the running of the companies, etc.)

In practice, mosern Islamic banks try to set things up to stay within the letter of Islamic law but to violate its goal of real personal responsibility.

http://www.american.com/archive/2007/march-april-m...

http://www.ruf.rice.edu/~elgamal/files/primer.pdf

Then there is the question of whether the economy of countries such as Indonesia and Turkey are Islamic at all. Indonesia is over 85% Muslim

https://www.cia.gov/library/publications/the-world...

Turkey is over 99.8% Muslim

https://www.cia.gov/library/publications/the-world...

Are you going to say that their economic systems are not Islamic because they don't follow Islamic law?

(Also recall that the same rules applied to Christians:

http://en.wikipedia.org/wiki/Usury#Scholastic_theo...

It was only later that this was changed.)

Have you noticed that Muslim countries haven't been economically successful at anything that doesn't stem from pumping oil out of the ground? What does that tell you?