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The relationship between financial inclusion and economic growth: the case of Azerbaijan

Author

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  • Zubeyda Imanova

    (Central Bank of Azerbaijan Republic)

Abstract

The World Bank has identified financial inclusion (FI) as a key driver of sustainable development. In developing countries with limited access to financial services, FI can serve as a powerful incentive for economic growth. This study investigates the relationship between FI and economic growth in Azerbaijan from 2010 to 2022, considering the effects of the COVID-19 pandemic. A multi-dimensional financial inclusion index was constructed using the Principal Component Analysis (PCA) method to combine several variables. The short-run and long-run relationships between FI and economic growth were analyzed using the Autoregressive Distributed Lag (ARDL) bound test and the Error Correction Model (ECM) approach. The results indicate a long-term cointegration relationship between economic growth and FI in Azerbaijan, with FI positively affecting real non-oil GDP per capita. These findings highlight the critical role of FI in enhancing economic activity and promoting sustainable economic growth.

Suggested Citation

  • Zubeyda Imanova, 2023. "The relationship between financial inclusion and economic growth: the case of Azerbaijan," Working Papers 2303, Central Bank of Azerbaijan Republic.
    • Handle: RePEc:aze:wpaper:2303
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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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