Does Financial Development and Financial Inclusion Matter for Economic Growth? Evidence from Iraq

In contemporary times, the imperative of fostering economic development necessitates the presence of financial inclusion and financial growth. The purpose of this study was to examine the impact of financial development and financial inclusion on the economic growth of Iraq. The empirical investigation in this study utilised time series data spanning from 2001 to 2020. The present study employed the ARDL Bounds test for analysis. The results of the regression model (ARDL) demonstrate the presence of a co-integrating relationship between financial inclusion, economic development, and financial growth. Over an extended duration, the contribution of the private sector to credit facilitated by commercial banks, the quantity of commercial bank branches, liquid liabilities, and labour force participation exhibit a direct and substantial influence on the economic growth of Iraq. Conversely, investment and broad money display a significant yet adverse effect on the country's economic growth. During the short-run period, the provision of credit to the private sector by various branches of commercial banks, as well as the labour force participation rate, have been found to have a substantial and positive impact on the economic growth of Iraq. In contrast, it can be observed that gross fixed capital formation has a notable and adverse impact on economic growth. During the short-term period in Iraq, there is limited evidence to suggest that liquid liabilities and broad money have a significant impact on financial growth. Therefore, in order to enhance economic growth, it is imperative for the government to implement measures aimed at augmenting the participation of individuals in the financial sectors, as well as fostering the advancement of financial institutions.