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

Zubeyda Imanova

No 2303, Working Papers from 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.

Keywords: financial inclusion; economic growth; principal component analysis (PCA); autoregressive distributed lag (ARDL); error detection model (ECM) (search for similar items in EconPapers)
JEL-codes: G21 O1 O11 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2023-05-06
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Persistent link: https://EconPapers.repec.org/RePEc:aze:wpaper:2303

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