Interdependence of the banking system development and the economic growth in the context of digitalization: Case study of Azerbaijan and its key trading partners
-
DOIhttp://dx.doi.org/10.21511/bbs.18(3).2023.13
-
Article InfoVolume 18 2023, Issue #3, pp. 147-163
- Cited by
- 412 Views
-
206 Downloads
This work is licensed under a
Creative Commons Attribution 4.0 International License
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.
- Keywords
-
JEL Classification (Paper profile tab)C40, F63, G21
-
References65
-
Tables6
-
Figures6
-
- 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
-
- Abbasov, A. M., Mamedov, Z. F., & Aliev, S. A. (2019). Digitalization of the Banking Sector: New Challenges and Prospects. Economics and Management, 6(164), 81- 89. (In Russian).
- Ajibade, Р., & Mutula, М. (2020). Big data, 4IR and electronic banking and banking systems applications in South Africa and Nigeria. Banks and Bank Systems, 15(2), 187-199.
- Andrișan, G., & Modreanu, A. (2022). An Overview of The Fourth Industrial Revolution through the Business Lens. Business Ethics and Leadership, 6(1), 39-46.
- Arnaudo, D., Del Prete, S., Demma, C., Manile, М., Orame, А., Pagnini, М., Rossi, С., Rossi, Р., & Soggia, G. (2022). The digital transformation in the Italian banking sector (Occasional Paper No. 682). Bank of Italy.
- Baltgailis, J., & Simakhova, A. (2022). The Technological Innovations of Fintech Companies to Ensure the Stability of the Financial System in Pandemic Times. Marketing and Management of Innovations, 2, 55-65.
- Bank of Israel (BoI). (2023). Digital shekel project – Technological experiment on a distributed platform.
- Belhadi, A., Abdellah, N., & Nezai, A. (2023). The Effect of Big Data on the Development of the Insurance Industry. Business Ethics and Leadership, 7(1), 1-11.
- Bethlendi, А., & Szőcs, А. (2022). How the Fintech ecosystem changes with the entry of Big Tech companies. Investment Management and Financial Innovations, 19(3), 38-48.
- Boyarko, I. M., & Samusevych, Y. V. (2011). Role of intangible assets in company’s value creation. Actual Problems of Economics, 117(3), 86-94. (In Ukrainian).
- Buriak, A., Lyeonov, S., & Vasylieva, T. (2015). Systemically important domestic banks: An indicator-based measurement approach for the Ukrainian banking system. Prague Economic Papers, 24(6), 715-728.
- Chen, Y., Xu, S., Lyulyov, O., & Pimonenko, T. (2023). China’s Digital Economy Development: Incentives and Challenges. Technological and Economic Development of Economy, 29(2), 518-538.
- Cooper, A. (2022). The Digitalisation of Banking in the UK. Finance. Global banking & Review.
- Dluhopolskyi, O., Pakhnenko, O., Lyeonov, S., Semenog, A., Artyukhova, N., Cholewa-Wiktor, M., & Jastrzębski, W. (2023). Digital financial inclusion: COVID-19 impacts and opportunities. Sustainability (Switzerland), 15(3), 2383.
- Dubina, O., Us, Y., Pimonenko, T., & Lyulyov, O. (2020). Customer Loyalty to Bank Services: The Bibliometric Analysis. Virtual Economics, 3(3), 52-66.
- Expatica. (2022). Mobile banking in Portugal.
- Financial System and Bank Examination Department. (2021). Digital Transformation of Japanese Banks. Bank of Japan.
- Fobel, P., & Kuzior, A. (2019). The future (industry 4.0) is closer than we think. will it also be ethical? Paper presented at the AIP Conference Proceedings, 2186, 080003.
- Geniusee. (2023). TOP 10 Digital Banking Trends For 2023 – Reshaping The Banking Landscape.
- Georgescu, I., Androniceanu, A.-M., & Drăgulănescu, I. (2023). A Deep Learning Approach to Digitalization and Economic Growth. Proceedings 16th International Conference on Business Excellence (pp. 79-92). Bucharest.
- Giebe, C., Zwerenz, D. & Hammerström, L. (2023). Big Data Analytics as an elementary Customer Loyalty Instrument for German banks – an empirical approach from a banker’s perspective. Financial Markets, Institutions and Risks, 7(1), 96-108.
- Goel, V., Mahajan, D., Nadeau, M.-C., Sperling, O., & Yeh, S. (2021). New trends in US consumer digital payments. McKinsey & Company.
- Grytten, О. H. (2021). Banking crises and financial instability: Empirical and historical lessons. Banks and Bank Systems, 16(4), 179-192.
- Guliev, I., Khubaeva, A., Chernysheva, E., & Kolesova, I. (2021). The influence of digitalization on Chinese banks: new financial technologies in a plan economy. E3S Web of Conferences, 291, 04001.
- Gurbanov, N., Yagublu, N., Akbarli, N., & Niftiyev, I. (2022). Digitalization and the Covid-19-led public crisis management: an evaluation of financial sustainability in the Azerbaijan business sector. SocioEconomic Challenges, 6(3), 23-38.
- Kolodiziev, O., Krupka, M., Shulga, N., Kulchytskyy, M., & Lozynska, O. (2021). The level of digital transformation affecting the competitiveness of banks. Banks and Bank Systems, 16(1), 81-91.
- Korneyev, M., Berezhniuk, I., Dzhyndzhoian, V., Nebaba, N., and Voytov, S. (2022). Efficiency Assessment of Banking Systems’ Performance. Banks and Bank Systems, 17(3), 72-88.
- Kozmenko, S. М., Korneyev, M. V., and Makedon, V. V. (2014). Financialisation of economy and its influence on the indicators of countries’ socioeconomic development. Actual Problems of Economics, 161(11), 290-298. (In Ukrainian).
- Kozmenko, S., & Vasylyeva, T. (2008). Specialized innovative investment banks in ukraine. Banks and Bank Systems, 3(1), 48-56.
- Kryklii, O. A., & Krukhmal, O. V. (2014). Problem loans management system in a bank. Actual Problems of Economics, 155(5), 409-415. (In Ukrainian).
- Kryklii, O. A., & Lysianska, O. O. (2014). Scientific and methodological approach to bank profit planning based on synthetic multidimensional indicators. Actual Problems of Economics, 157(7), 514-523. (In Ukrainian).
- Krykliy, O. A., & Ryabichenko, D. O. (2012). Scientific-methodological approach to bank liquidity management basing on the results of the taxonomic indicators analysis. Actual Problems of Economics, 138(12), 196-206. (In Ukrainian).
- Kuzior, A., & Kwilinski, A. (2022). Cognitive technologies and artificial intelligence in social perception. Management Systems in Production Engineering, 30(2), 109-115.
- Kuznyetsova, A., Boiarko, I., Rudevska, V., & Maslov, V. (2022). Development Of Business Architecture Of The Banking Sector Based On Public-Private Partnership. Banks and Bank Systems, 17(2), 150-162.
- Kuznyetsova, A., Misiats, N., & Klishchuk, O. (2017). The equilibrium model of demand and supply at the Ukrainian interbank foreign exchange market: Disclosure of problematic aspects. Banks and Bank Systems, 12(4), 31-73.
- Leonov, S. V., Vasylieva, T. A., & Tsyganyuk, D. L. (2012). Formalization of functional limitations in functioning of co-investment funds basing on comparative analysis of financial markets within FM CEEC. Actual Problems of Economics, 134(8), 75-85. (In Ukrainian).
- Markevich, K. (2021). Tsyfrovizatsiia: perevahy ta shliakhy podolannia vyklykiv [Digitalization: Advantages and Ways to Overcome Challenges]. International scientific and practical conference (pp. 42-45). Melitopol, Ukraine. (In Ukrainian).
- Maslenikov, V. V. (2010). Zarubizhni bankivski systemy [Foreign banking systems]. Ekonomika, finansy, pravo – Economics, Finances, Law, 10, 15-20. (In Ukrainian).
- Melnyk, L., Kubatko, O., Matsenko, O., Balatskyi, Y., & Serdyukov, K. (2021a). Transformation of the human capital reproduction in line with industries 4.0 and 5.0. Problems and Perspectives in Management, 19(2), 480-494.
- Melnyk, L., Kubatko, O., Piven, V., Klymenko, K., & Rybina, L. (2021b). Digital and economic transformations for sustainable development promotion: A case of OECD countries. Environmental Economics, 12(1), 140-148.
- Melnyk, M., Kuchkin, M., & Blyznyukov, A. (2022). Conceptualization and Measuring the Digital Economy. Business Ethics and Leadership, 6(2), 127-135.
- Metawa, N., Itani, R., Metawa, S., & Elgayar, A. (2023). The impact of digitalization on credit risk: the mediating role of financial inclusion (National Bank of Egypt (NBE) case study). Economic Research-Ekonomska Istrazivanja, 36(2), 2178018.
- Murshudli, F. F. (2018). Innovatsionnyye trendy mezhdunarodnogo bankovskogo biznesa (na primere Azerbaidzhana [Innovative Trends of International Banking Business (Case of Azerbaijan)]. MGIMO Review of International Relations, 1(58), 186-212. (In Russian).
- Murshudli, F., & Loguinov, B. (2019). Digitalization challenges to global banking industry. 37th International Scientific Conference on Economic and Social Development – “Socio Economic Problems of Sustainable Development” (pp. 786-794). Baku: VDEA – UNEC.
- Murshudli, F., & Loguinov, B. (2020). Transnationalization and Digitalization of Banks as Means of Evolving Efficiency Not Accountability. 55th International Scientific Conference on Economic and Social Development (pp. 798-809). Baku: VDEA – UNEC.
- National Bank of Ukraine (NBU). (2019). Analytical Report on the E-hryvnia Pilot Project. National Bank of Ukraine.
- NeoBanks.app. (2023). Neobanks in Croatia.
- Njegovanović, A. (2023). Financial Evolution and Interdisciplinary Research. Financial Markets, Institutions and Risks, 7(1), 71-95.
- Page, C. (2022). Georgia on the radar: how the country’s leading bank is redefining the digital experience. Bank of Georgia.
- Prokopenko, О., Zholamanova, М., Mazurenko, V., Kozlianchenko, О., & Muravskyi, О. (2022). Improving customer relations in the banking sector of Ukraine through the development of priority digital banking products and services: Evidence from Poland. Banks and Bank Systems, 17(3), 12-26.
- Ramli, M., Boutayeba, F., Nezai, A. (2022). Public Investment in Human Capital and Economic Growth in Algeria: An empirical study using ARDL approach. SocioEconomic Challenges, 6(2), 55-66.
- Rushchyshyn, N., Mulska, О., Nikolchuk, Н., Rushchyshyn, М., and Taras Vasyltsiv (2021). The impact of banking sector development on economic growth: Comparative analysis of Ukraine and some EU countries. Investment Management and Financial Innovations, 18(2), 193-208.
- Sadigov, R. (2022). Impact of Digitalization on Entrepreneurship Development in the Context of Business Innovation Management. Marketing and Management of Innovations, 1, 167-175.
- Semenyuta, O. G., & Shapiro, I. E (2023). Risks of Banking Transformation in Digitalization. In E. N. Makarenko, N. G. Vovchenko, and E. N. Tishchenko (Eds.), Technological Trends in the AI Economy: International Review and Ways of Adaptation (pp. 357-362). Singapore: Springer Nature Singapore.
- Shabashev, V. A., Shorokhov, S. I., & Verkhozina, M. F. (2016). Strukturnoye modelirovaniye sviazey ekonomicheskikh, sotsialnykh i demograficheskikh faktorov [Structural Modeling of Relationships of Economic, Social and Demographic Factors]. Regional Economics: Theory and Practice, 10, 169-179. (In Russian).
- Slavinskaite, N., Lapinskiene, G., Hlawiczka, R., & Vasa, L. (2022). Financial Innovation Management: Impact of Fiscal Decentralization on Economic Growth of the Baltic Countries. Marketing and Management of Innovations, 1, 257-271.
- Statista. (2023). Digital Payments – Croatia.
- Strategy & PWC. (2023). Digital Banking Overview and Potential in Turkey.
- Thunes. (2023). China: Payment Trends and Popular Payment Methods.
- Tradeconomy. (2021). Azerbaijan. Import and Export.
- Tsindeliani, I. A., Proshunin, M. M., Sadovskaya, T. D., Popkova, Z. G., & Davydova, M. A. (2023). Digital transformation of the banking system in the context of sustainable development. Journal of Money Laundering Control, 25(1), 165-180.
- Tyagi, M., Yadav S., Sanwal T., & Avasthi, S. (2022). Impact of Digitization in Banking Services on Customer Habits. 10th International Conference on Reliability, Infocom Technologies and Optimization (Trends and Future Directions) (ICRITO) (pp. 1-8). Noida, India.
- Vasilyeva, T. A., Leonov, S. V., & Lunyakov, O. V. (2013). Analysis of internal and external imbalances in the financial sector of ukraine’s economy. Actual Problems of Economics, 150(12), 176-184. (In Ukrainian).
- Vasylyeva, T. A., Leonov, S. V., & Lunyakov, O. V. (2014). Countercyclical capital buffer as a macroprudential tool for regulation of the financial sector. Actual Problems of Economics, 158(8), 278-283. (In Ukrainian).
- World Bank. (2023). World Development Indicators.
- Yoshimori, H., & Yoshimori, M. (2022). An Education Gift – Integrated Cognitive and Non-Cognitive Skills – for Future Generations to Grow the Economy in the Digital Phase. SocioEconomic Challenges, 6(2), 5-18.