The Impact of Financial Inclusion Indicators on Trade Openness in Iraq: An Econometric Study (2010-2024)
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Abstract
This paper analyzes the role of financial inclusion in explaining trade openness in Iraq during 2010–2024, using Central Bank of Iraq data. It highlights the prevalence of cash-based transactions and limited access to formal financial channels, which increase transaction costs and hinder trade settlement and finance. Trade openness is measured as the ratio of imports to GDP, while financial inclusion is captured through banking access and usage, ATM and branch density, and the depth of private sector deposits and credit. Annual data were converted to quarterly observations, and descriptive statistics, the Phillips-Perron test, and variance inflation factors were applied. Due to high overlap among indicators, the Elastic Net model with cross-validation was used. Results show that spatial banking expansion positively relates to trade openness, whereas some cash-based and credit indicators have a negative effect, reflecting exchange rate pressures and import restrictions in Iraq.
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