The role of financial intermediaries in the economy: The evidence from Azerbaijan

The performance of financial intermediaries has an important role in the generation of economic output in a country. The research aims to examine the role of financial intermediaries in the Azerbaijan economy – especially the non-oil sector. Using yearly data of 2000-2020, the research explores the long-run impact of bank and non-bank credits over the non-oil GDP of Azerbaijan. The ARDLBT approach to cointegration is employed to test the existence of any cointegration relationship in the estimated models. While controlling for the role of public expenditures, empirical results reveal that there is a significant positive long-run impact of non-bank credits over the non-oil sector in Azerbaijan. On the contrary, the impact of bank credits is found insignificant and not economically meaningful. The problem requires further investigation while considering the use of credits obtained from both bank and non-bank credits. If credits are used to finance the purchase of imported products, it will not have a substantial contribution to the non-oil sector of Azerbaijan economy. Research findings can be useful to comprehend the role of financial intermediaries in the non-oil sector and make further amendments to banking policy.