EMPIRICAL ASSESSMENT OF THE IMPACT OF THE NON-FINANCIAL SECTOR ON THE FINANCIAL SECTOR IN THE AZERBAIJANI ECONOMY BASED ON THE LEONTIEF INPUT–OUTPUT MODEL

Abstract

This paper analyzes intersectoral linkages within the Azerbaijani economy and examines the impact of the non-financial sector on the financial sector through price and value-added transmission channels. Using the Leontief input–output model, intersectoral interdependencies are modeled, and the effects of structural and value-added changes in the non-financial sector (real sector) on the equilibrium state of the financial sector are evaluated. Empirical simulation results based on intersectoral balance tables indicate that a 10% increase in the value-added coefficient of the non-financial sector raises equilibrium prices in the financial sector by 1.54% in financial services, 1.82% in insurance and pension services (excluding compulsory social security), and 2.22% in auxiliary activities supporting financial and insurance services. Furthermore, a 10% increase in the final output of the non-financial sector increases total output in the financial sector by 7.53%, 9.02%, and 7.93%, respectively. These findings demonstrate strong transmission linkages between the non-financial and financial sectors, highlighting that the Leontief model allows for a quantitative assessment of these interdependencies and an analysis of the mechanisms of price and value-added transmission.