Determining the relationship between financial inclusion and financial stability: An application for Iraq

Abstract

This study aims to determine the relationship between financial inclusion and financial stability in Iraq by applying the ARDL bounds test. The dependent variable of the study is the financial stability index (FIE), and the independent variables are the number of ATMs (ATM), banking diffusion (BYA), banking density (BYO), credit depth (KD) and deposit depth (MD). However, since there is a high correlation between BYA and BYO, two different models were established in the study. According to the analysis results of both models, a negative relationship was found between FIE and ATM in the short and long run. Again, as a result of the analysis of both models, it was determined that there is a negative relationship between FIE and KD in the short run. On the other hand, in the first model, it is understood that there is a long-run positive relationship between FIE and KD. Finally, in the second model, it was observed that there was a long-run positive relationship between FIE and MD.