Page 26 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.76, # 1, 2019, pp. 20-33

According to my findings, optimal points where financial deepness and financial
stability crosses are as below:

Table 1: Optimal size of financial depth
Middle to high Azerbaijan

income countries (2017)
Ratio of private sector 96% 16.4%
loans to GDP
Ratio of domestic 22% 1%
corporate loans to GDP
Ratio of corporate
foreign debt to GDP 15% 16.7%

The ratio of private sector loan to GDP in Azerbaijan (16.4%) is well below the
optimal level of 96% (See Table 1). In addition, the domestic corporate securities
market is not well developed which also indicates that financial system is at its early
development stage (bank centered financial sector). Meanwhile, foreign debt of
corporate sector accounts for 16.7%, which is higher than optimal level.

GDP growth rate Volatility of GDP growth rate
I II III IV
Base Extended Base Extended
1. Financial variables
Bank loans to private 17.155* 17.245*
sector / GDP - log, %
(9.548) (9.501)
Bank loans to private
sector / GDP (square) - –1.975* –1.945*
log, %
(1.081) (1.088)
Bank loans to private –0.107** –0.125**
sector /GDP, %
(0.046) (0.06)
Bank loans to private
sector /GDP (square), 0.0003* 0.001*
%
(0.0001) (0.000)
2.Macroeconomic
variables
Inflation (CPI) - log, % –0.826*** –0.450*
(0.292) (0.313)
GDP per capita (lag =
1) - loq, USD –2.095*** –2.748***
(0.483) (0.575)
GDP per capita, 0.027 –0.031
thousand USD
(0.028) (0.060)
Resource rent /GDP (lag –0.162
= 1) - log, %
(0.223)
Volatility of national 0.009 0.006*
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