The Economic Impact of Digital Financial Inclusion: Evidence from Iraq (2023-2010)
Corresponding Author(s) : Hussein Kaif Aziz
American Journal of Economics and Business Management,
Vol. 8 No. 5 (2025): May
Abstract
Digital financial inclusion has emerged as a transformative mechanism that extends financial access, reduces transaction costs, and promotes economic stability, particularly in developing economies. In Iraq, limited banking infrastructure, low ATM penetration, and reliance on cash-based systems hinder the potential benefits of financial technology. Despite growing global research on digital finance, empirical evidence on its macroeconomic effects in financially underdeveloped contexts like Iraq remains limited. This study investigates the impact of digital financial inclusion on Iraq's economic performance from 2010 to 2023 using an econometric framework combining factor analysis and Ridge Regression with Bootstrap resampling. The findings reveal that indicators such as ATM availability, banking spread, and branch density significantly influence an economic performance index derived from poverty, unemployment, and financial depth metrics. The model achieved strong predictive accuracy, with an R² of 0.79 and a mean absolute percentage error of 8.8%. Future projections show fluctuations in economic performance, emphasizing the role of financial accessibility in macroeconomic stability. The research introduces a robust statistical model tailored for data-limited environments, employing Ridge Regression to address multicollinearity and Bootstrap techniques to improve reliability, offering a replicable method for analyzing financial inclusion effects. The study provides policy-relevant insights, highlighting the importance of expanding digital financial infrastructure to enhance economic resilience in Iraq. It underscores the need for targeted regulatory reform, digital literacy programs, and strategic financial sector investments to sustain inclusive economic growth.
Keywords
Download Citation
Endnote/Zotero/Mendeley (RIS)BibTeX
- M. Ahmad, A. Majeed, M. A. Khan, M. Sohaib, and K. Shehzad, “Digital financial inclusion and economic growth: Provincial data analysis of China,” China Economic Journal, vol. 14, no. 3, pp. 291–310, 2021.
- N. Alwahidin, A. Jufra, B. Mulu, and K. N. Sari, “A New Economic Perspective: Understanding The Impact Of Digital Financial Inclusion On Indonesian Households Consumption,” Bulletin of Monetary Economics and Banking, vol. 26, no. 2, pp. 333–360, 2023.
- S. Bhatia and G. Dawar, “The impact of financial inclusion on social and political empowerment: Mediating role of economic empowerment,” Journal of the Knowledge Economy, vol. 15, no. 3, pp. 13727–13744, 2024.
- W. Chen and X. Yuan, “Financial inclusion in China: an overview,” Frontiers of Business Research in China, vol. 15, pp. 1–21, 2021.
- J. H. Friedman, T. Hastie, and R. Tibshirani, “Regularization paths for generalized linear models via coordinate descent,” Journal of Statistical Software, vol. 33, pp. 1–22, 2010.
- Q. Guo, Z. Wu, C. Ding, M. W. Akbar, and T. Guo, “An empirical analysis of the nexus between digital financial inclusion, industrial structure distortion, and China’s energy intensity,” Environmental Science and Pollution Research, vol. 30, no. 17, pp. 49397–49411, 2023.
- Hashemizadeh, R. U. Ashraf, I. Khan, and S. A. H. Zaidi, “Digital financial inclusion, environmental quality, and economic development: the contributions of financial development and investments in OECD countries,” Environmental Science and Pollution Research, vol. 30, no. 54, pp. 116336–116347, 2023.
- T. Hastie, R. Tibshirani, and J. H. Friedman, The Elements of Statistical Learning: Data Mining, Inference, and Prediction, 2nd ed. New York: Springer, 2009.
- X. Lei, X. Chen, L. Xu, R. Qiu, and B. Zhang, “Carbon reduction effects of digital financial inclusion: Evidence from the county-scale in China,” Journal of Cleaner Production, vol. 451, p. 142098, 2024.
- J. Li, “Examining the impact of digital financial inclusion on economic development in urban and rural areas of China using remote sensing,” GeoJournal, vol. 89, no. 1, p. 28, 2024.
- Q. Li and Q. Liu, “Impact of digital financial inclusion on residents’ income and income structure,” Sustainability, vol. 15, no. 3, p. 2196, 2023.
- Y. Liang, R. Wei, and D. Duan, “Digital financial development and commercial bank stability,” International Review of Economics & Finance, vol. 97, p. 103749, 2025.
- D. Liu, Y. Zhang, M. Hafeez, and S. Ullah, “Financial inclusion and its influence on economic-environmental performance: demand and supply perspectives,” Environmental Science and Pollution Research, vol. 29, no. 38, pp. 58212–58221, 2022.
- F. Liu and B. Walheer, “Financial inclusion, financial technology, and economic development: A composite index approach,” Empirical Economics, vol. 63, no. 3, pp. 1457–1487, 2022.
- J. Liu and Y. Yao, “Digital financial inclusion and upgrading of consumption structure: Evidence from rural China,” Heliyon, vol. 10, no. 7, 2024.
- Y. Liu, L. Luan, W. Wu, Z. Zhang, and Y. Hsu, “Can digital financial inclusion promote China's economic growth?,” International Review of Financial Analysis, vol. 78, p. 101889, 2021.
- J. Luo and B. Z. Li, “Impact of digital financial inclusion on consumption inequality in China,” Social Indicators Research, vol. 163, no. 2, pp. 529–553, 2022.
- D. Mhlanga, “Industry 4.0 in finance: the impact of artificial intelligence (AI) on digital financial inclusion,” International Journal of Financial Studies, vol. 8, no. 3, p. 45, 2020.
- Nagpal, M. Jain, and A. Jain, “Determining the role of digital technology, governance and institutions in advancing financial inclusion in BRICS nations using probit regression analysis,” Journal of Social and Economic Development, vol. 22, pp. 443–459, 2020.
- S. Pal and I. Bandyopadhyay, “Impact of financial inclusion on economic growth, financial development, financial efficiency, financial stability, and profitability: an international evidence,” SN Business & Economics, vol. 2, no. 9, p. 139, 2022.
- P. Peng and H. Mao, “The effect of digital financial inclusion on relative poverty among urban households: A case study on China,” Social Indicators Research, vol. 165, no. 2, pp. 377–407, 2023.
- S. M. K. Rahman, M. A. F. Chowdhury, and N. R. Sristi, “Impact of digital financial inclusion on economic growth: a study on Bangladesh,” International Journal of Social Economics, 2024.
- J. Ren, T. Gao, X. Shi, X. Chen, and K. Mu, “The impact and heterogeneity analysis of digital financial inclusion on non-farm employment of rural labor,” Chinese Journal of Population, Resources and Environment, vol. 21, no. 2, pp. 103–110, 2023.
- Y. Shen, W. Hu, and C. J. Hueng, “Digital financial inclusion and economic growth: a cross-country study,” Procedia Computer Science, vol. 187, pp. 218–223, 2021.
- X. Song, X. Qin, W. Wang, and R. Y. M. Li, “Financial Inclusion, Technologies, and Worldwide Economic Development: A Spatial Durbin Model Approach,” The Journal of Finance and Data Science, p. 100155, 2025.
- Telukdarie and A. Mungar, “The impact of digital financial technology on accelerating financial inclusion in developing economies,” Procedia Computer Science, vol. 217, pp. 670–678, 2023.
- H. N. Van and D. Le Quoc, “Assessing the impact of digital financial inclusion on sustainable development goals: Analyzing differences by financial development levels across countries,” Journal of the Knowledge Economy, pp. 1–24, 2024.
- F. Wang, X. Zhang, C. Ye, and Q. Cai, “The household multidimensional poverty reduction effects of digital financial inclusion: a financial environment perspective,” Social Indicators Research, vol. 172, no. 1, pp. 313–345, 2024.
- S. Xu and J. Wang, “The impact of digital financial inclusion on the level of agricultural output,” Sustainability, vol. 15, no. 5, p. 4138, 2023.
- Yang, M. Yang, F. Zhang, A. A. M. Kassim, and P. Wang, “Has digital financial inclusion curbed carbon emissions intensity? Considering technological innovation and green consumption in China,” Journal of the Knowledge Economy, pp. 1–30, 2024.
- Y. Zhou, C. Zhang, and Z. Li, “The impact of digital financial inclusion on household carbon emissions: evidence from China,” Journal of Economic Structures, vol. 12, no. 1, p. 2, 2023.
References
M. Ahmad, A. Majeed, M. A. Khan, M. Sohaib, and K. Shehzad, “Digital financial inclusion and economic growth: Provincial data analysis of China,” China Economic Journal, vol. 14, no. 3, pp. 291–310, 2021.
N. Alwahidin, A. Jufra, B. Mulu, and K. N. Sari, “A New Economic Perspective: Understanding The Impact Of Digital Financial Inclusion On Indonesian Households Consumption,” Bulletin of Monetary Economics and Banking, vol. 26, no. 2, pp. 333–360, 2023.
S. Bhatia and G. Dawar, “The impact of financial inclusion on social and political empowerment: Mediating role of economic empowerment,” Journal of the Knowledge Economy, vol. 15, no. 3, pp. 13727–13744, 2024.
W. Chen and X. Yuan, “Financial inclusion in China: an overview,” Frontiers of Business Research in China, vol. 15, pp. 1–21, 2021.
J. H. Friedman, T. Hastie, and R. Tibshirani, “Regularization paths for generalized linear models via coordinate descent,” Journal of Statistical Software, vol. 33, pp. 1–22, 2010.
Q. Guo, Z. Wu, C. Ding, M. W. Akbar, and T. Guo, “An empirical analysis of the nexus between digital financial inclusion, industrial structure distortion, and China’s energy intensity,” Environmental Science and Pollution Research, vol. 30, no. 17, pp. 49397–49411, 2023.
Hashemizadeh, R. U. Ashraf, I. Khan, and S. A. H. Zaidi, “Digital financial inclusion, environmental quality, and economic development: the contributions of financial development and investments in OECD countries,” Environmental Science and Pollution Research, vol. 30, no. 54, pp. 116336–116347, 2023.
T. Hastie, R. Tibshirani, and J. H. Friedman, The Elements of Statistical Learning: Data Mining, Inference, and Prediction, 2nd ed. New York: Springer, 2009.
X. Lei, X. Chen, L. Xu, R. Qiu, and B. Zhang, “Carbon reduction effects of digital financial inclusion: Evidence from the county-scale in China,” Journal of Cleaner Production, vol. 451, p. 142098, 2024.
J. Li, “Examining the impact of digital financial inclusion on economic development in urban and rural areas of China using remote sensing,” GeoJournal, vol. 89, no. 1, p. 28, 2024.
Q. Li and Q. Liu, “Impact of digital financial inclusion on residents’ income and income structure,” Sustainability, vol. 15, no. 3, p. 2196, 2023.
Y. Liang, R. Wei, and D. Duan, “Digital financial development and commercial bank stability,” International Review of Economics & Finance, vol. 97, p. 103749, 2025.
D. Liu, Y. Zhang, M. Hafeez, and S. Ullah, “Financial inclusion and its influence on economic-environmental performance: demand and supply perspectives,” Environmental Science and Pollution Research, vol. 29, no. 38, pp. 58212–58221, 2022.
F. Liu and B. Walheer, “Financial inclusion, financial technology, and economic development: A composite index approach,” Empirical Economics, vol. 63, no. 3, pp. 1457–1487, 2022.
J. Liu and Y. Yao, “Digital financial inclusion and upgrading of consumption structure: Evidence from rural China,” Heliyon, vol. 10, no. 7, 2024.
Y. Liu, L. Luan, W. Wu, Z. Zhang, and Y. Hsu, “Can digital financial inclusion promote China's economic growth?,” International Review of Financial Analysis, vol. 78, p. 101889, 2021.
J. Luo and B. Z. Li, “Impact of digital financial inclusion on consumption inequality in China,” Social Indicators Research, vol. 163, no. 2, pp. 529–553, 2022.
D. Mhlanga, “Industry 4.0 in finance: the impact of artificial intelligence (AI) on digital financial inclusion,” International Journal of Financial Studies, vol. 8, no. 3, p. 45, 2020.
Nagpal, M. Jain, and A. Jain, “Determining the role of digital technology, governance and institutions in advancing financial inclusion in BRICS nations using probit regression analysis,” Journal of Social and Economic Development, vol. 22, pp. 443–459, 2020.
S. Pal and I. Bandyopadhyay, “Impact of financial inclusion on economic growth, financial development, financial efficiency, financial stability, and profitability: an international evidence,” SN Business & Economics, vol. 2, no. 9, p. 139, 2022.
P. Peng and H. Mao, “The effect of digital financial inclusion on relative poverty among urban households: A case study on China,” Social Indicators Research, vol. 165, no. 2, pp. 377–407, 2023.
S. M. K. Rahman, M. A. F. Chowdhury, and N. R. Sristi, “Impact of digital financial inclusion on economic growth: a study on Bangladesh,” International Journal of Social Economics, 2024.
J. Ren, T. Gao, X. Shi, X. Chen, and K. Mu, “The impact and heterogeneity analysis of digital financial inclusion on non-farm employment of rural labor,” Chinese Journal of Population, Resources and Environment, vol. 21, no. 2, pp. 103–110, 2023.
Y. Shen, W. Hu, and C. J. Hueng, “Digital financial inclusion and economic growth: a cross-country study,” Procedia Computer Science, vol. 187, pp. 218–223, 2021.
X. Song, X. Qin, W. Wang, and R. Y. M. Li, “Financial Inclusion, Technologies, and Worldwide Economic Development: A Spatial Durbin Model Approach,” The Journal of Finance and Data Science, p. 100155, 2025.
Telukdarie and A. Mungar, “The impact of digital financial technology on accelerating financial inclusion in developing economies,” Procedia Computer Science, vol. 217, pp. 670–678, 2023.
H. N. Van and D. Le Quoc, “Assessing the impact of digital financial inclusion on sustainable development goals: Analyzing differences by financial development levels across countries,” Journal of the Knowledge Economy, pp. 1–24, 2024.
F. Wang, X. Zhang, C. Ye, and Q. Cai, “The household multidimensional poverty reduction effects of digital financial inclusion: a financial environment perspective,” Social Indicators Research, vol. 172, no. 1, pp. 313–345, 2024.
S. Xu and J. Wang, “The impact of digital financial inclusion on the level of agricultural output,” Sustainability, vol. 15, no. 5, p. 4138, 2023.
Yang, M. Yang, F. Zhang, A. A. M. Kassim, and P. Wang, “Has digital financial inclusion curbed carbon emissions intensity? Considering technological innovation and green consumption in China,” Journal of the Knowledge Economy, pp. 1–30, 2024.
Y. Zhou, C. Zhang, and Z. Li, “The impact of digital financial inclusion on household carbon emissions: evidence from China,” Journal of Economic Structures, vol. 12, no. 1, p. 2, 2023.