Interdependence of the banking system development and the economic growth in the context of digitalization: Case study of Azerbaijan and its key trading partners

  • Received July 21, 2023;
    Accepted August 28, 2023;
    Published September 7, 2023
  • Author(s)
  • DOI
    http://dx.doi.org/10.21511/bbs.18(3).2023.13
  • Article Info
    Volume 18 2023, Issue #3, pp. 147-163
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When choosing a country as a trading partner, an important role is played by the speed, convenience, and reliability of banking services (this is primarily determined by the level of digitalization of banking activities), and the general level of economic growth of this country. The article analyzes the relationship between the efficiency of the banking system and the country’s economic growth under digitalization using the example of Azerbaijan and its key trading partners. Calculations were made using data for 2010–2021 based on World Bank, IMF, and UN statistics. Principal component analysis was used to identify the most relevant indicators that describe the stability of the banking system, the level of economic development of the country, and the level of digitalization; the method of structural modeling was used to identify functional relationships between the constructed synthetic generalizing indicators. Calculations showed that the development of the banking system is much more (almost seven times) influenced by the level of digitalization in the country than the level of economic growth (coefficients for synthetic generalizing indicators formed in the process of structural modeling are 0.29 and 0.04). Modeling proved that the focus of reforms aimed at increasing the level of digitalization in the country should be an increase in the number of electronic accounts, electronic payments, the share of the population using the Internet, growth of R&D expenditures, and innovation index.

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    • Figure 1. Covariance matrix of initial data
    • Figure 2. Graphical interpretation of the created model
    • Figure 3. Output window of the iterative process and the results
    • Figure 4. Structural modeling results
    • Figure 5. Normal probability plot
    • Figure 6. Reproduced matrix
    • Table 1. Parameters characterizing the level of digitization, development of the banking system and economic growth (input parameters for calculations)
    • Table 2. Azerbaijan’s trading partner countries by export and import volumes as of the end of 2021
    • Table 3. Eigenvalues and the share of total variance for the components formed by synthetic generalized indicators of digitalization, development of the banking system and economic growth
    • Table 4. Factor loadings of the main parameters characterizing the level of digitization, economic growth and banking system development
    • Table 5. Results of the created structural model
    • Table 6. Mathematical interpretation of the connections between digitization, development of the banking system and economic growth based on structural modeling
    • Conceptualization
      Nigar Tagiyeva, Esmira Babashirinova
    • Data curation
      Nigar Tagiyeva
    • Investigation
      Nigar Tagiyeva, Esmira Babashirinova
    • Methodology
      Nigar Tagiyeva, Esmira Babashirinova
    • Project administration
      Nigar Tagiyeva, Gulnara Ismayilova
    • Validation
      Nigar Tagiyeva, Esmira Babashirinova
    • Writing – original draft
      Nigar Tagiyeva, Esmira Babashirinova, Yashar Damirov
    • Writing – review & editing
      Nigar Tagiyeva, Gulnara Agabekova, Gulnara Ismayilova
    • Software
      Esmira Babashirinova, Gulnara Agabekova
    • Formal Analysis
      Gulnara Agabekova, Yashar Damirov
    • Funding acquisition
      Gulnara Agabekova, Yashar Damirov
    • Visualization
      Gulnara Agabekova, Gulnara Ismayilova
    • Resources
      Yashar Damirov, Gulnara Ismayilova
    • Supervision
      Yashar Damirov, Gulnara Ismayilova