Page 27 - Azerbaijan State University of Economics

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

currency, national
currency / USD
(0.006) (0.004)
Oil export / GDP, % 0.058**
(0.026)
3. Demographic
variables
Population growth rate, % 0.390
(0.351)
Coefficient of
demographic cost of –3.788***
children, log
(1.423)
Coefficient of 0.209
demographic cost of (0.195)
elderly person, log

Number of observations 267 249 277 272
The optimal level 76.875*** 86.519*** 121.039*** 104.443***
(15.384) (18.547) (19.604) (16.442)

Considering the importance of the banking sector for Azerbaijan, its impact was
analyzed separately. For banking sector measurement, i) number of banks ii) number
of bank branches iii) number of banking sector employees and iv) assets of banking
sector were used. Each of these parameters are formed according to demand to bank
services. If we assume that financial systems of developed countries are competitive
and efficient, then banking system of these countries can serve as benchmark.

Table 2. List of factors that size of banking sector depends

Banks Branches Employees Assets
GDP GDP GDP GDP
Population Population Population
Foreign liabilities Size of the country Size of the country
Savings Foreign liabilities Foreign liabilities

According to our analysis, as financial depth increases in Azerbaijan, economic
growth speeds up. (Graph 1 and Graph 2). Until loan-to-GDP ratio reaches 86.5%
(optimal point) this indicator positively impacts economic growth and afterwards
negative. Loan to GDP reached its peak of 38.5% in Azerbaijan and afterwards
stabilized at 16.4% in 2017.

Currently financial sector in the country is bank-based and accordingly banks play
important role in the financial markets. In this regard, defining optimal size of the
banking sector is also important for the efficiency of monetary policy.

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