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

The aim of this thesis is to determine the relationship between financial inclusion and financial stability in Iraq. For this purpose, first of all, Iraq's macroeconomic, banking sector and capital market indicators were used to create the financial stability index (FIE) for the period 2004-2020 and used as the dependent variable in the analysis. The independent variables of the study are the number of ATMs, banking density, banking diffusion, credit depth and deposit depth. However, since there is a high correlation between banking density and banking diffusion, two different models have been established. Since the variables were stationary according to the PP and ADF unit root tests conducted within the scope of the study, the datas were tested with the ARDL bounds test. According to the analysis result of the first model, there is a negative relationship between FIE and number of ATMs in the short and long run. There was a negative relationship between FIE and credit depth in the short run and a positive relationship in the long run. In the second model, a negative relationship was found between the FIE and the number of ATMs in the short and long run. On the other hand, as a result of the analysis made with the second model, it is understood that there is a positive relationship between FIE and deposit depth, and a negative relationship between FIE and credit depth.