Document Type : Original Article
Authors
1 Neyriz Branch, Islamic Azad University, Neyriz, Iran
2 Assistant Professor of Economics
Abstract
INTRODUCTION
The role of the financial system on economic development has attracted and received increased attention from both academia and policy makers, with resulting divergent views emerging. Over the past decades, focus on this area has increased, with mixed findings which remains a theoretical and empirical controversy. Financial development has played a leading role in many developing economies (Puatwoe and Piabuo , 2017). There is a widespread believe among policy makers that financial development enhances productivity which promotes growth. There are a few key findings from the analysis of how financial development affects economic growth. The first is through the savings rate that leads to investment and capital accumulation, and the second is through channel allocation, in which financial development can increase efficient investment allocations thereby increasing productivity .(Ikhsan1 and Satrianto,2023)
But the situation in developing countries is different. Some studies argue that the financial sector stimulates economic growth, while others argue the opposite (Sulemana and Dramani, 2020). The study (Adusei, 2013) also shows evidence that financial development undermines economic growth and is an anti-growth factor. There are also few studies that state that financial development has no effect on economic growth. These studies provide evidence in support of this. They provide the concept that financial development and economic growth are not related and are two separate phenomena that are independent from each other (Yıldırım, S., Özdemir, BK., and Doğan, B., 2013).
All these different views are sufficient reasons to examine The effect of financial development indicators on economic growth in Iran
The purpose of this research is to investigate the long-term and short-term effects of financial development indicators (financial efficiency and financial depth) on economic growth in Iran.
2- THEORETICAL FRAMEWORK
Some previous studies (Bittencourt, 2012; Estrada, Park, & Ramayandi, 2010; Hassan, Sanchez, & Yu, 2011; Škare, Sinković, & Porada-Rochoń, 2019) have indicated that financial development can affect economic growth by performing the function of financial intermediaries so that the distribution of financial resources can be absorbed by the productive sector. Other studies (Moyo & Le Roux, 2020; Petkovski & Kjosevski, 2014) provide evidence that financial development has a negative influence and has not been able to play a role in economic growth. IkhsanSome studies show that developing countries mostly report the negative impact of financial development on economic growth, which can be caused by specific characteristics, principled framework and management issues.Some studies (Bloch and Tang 2003., Ram and Andersen 1999., & Tang and Trap 2003.( also provide evidence in support of the concept that financial development and economic growth are not related and are two separate phenomena that are independent of each other (Bloch and Tang 2003, Ram and Andersen 1999, & Trap).
Therefore, the results that have been provided over time about this relationship have been inconclusive and only three main results have been obtained from these studies: positive, negative and lack of influence.
According to the results of the study (Bakar and Sulong, 2018), the impact of financial development on economic growth depends on the choice of time frame, the sample of countries, the list of variables, the choice of different indicators and even econometric methods.
3- METHODOLOGY
In order to investigate the long-term and short-term effects of capital efficiency and financial depth on economic growth,
this research utilises the newly proposed autoregressive distributive lag (ARDL) approach which was developed and introduced by Pesaran and Shin (1995 and 1998), Pesaran et al.
The analysis using the ARDL method is based on the interpretation of three equations: dynamic equation, long-term equation and error correction. Before estimating the model, default tests of unit root, homogeneity and determination of optimal interval should be performed
4- RESULTS & DISCUSSION
Using the ARDL technique, it was found that there is a positive short-term relationship between liquidity volume and economic growth and a similar negative short-term relationship between banking system deposits and economic growth. But in the long run, the banking system's deposits have a positive and significant effect on economic growth. While the effect of liquidity on economic growth in the long run is negative. Also, private sector credit as an indicator of financial efficiency, both in the long run and in the short run, has no significant effect on economic growth
5- CONCLUSIONS & SUGGESTIONS
The impact of financial development on economic growth is one of the most important channels in economic matters, which has attracted many debates and controversies, but the results of research related to the impact of financial development indicators on economic growth are theoretically and empirically different from each other.
All these different views are sufficient reasons to examine the effect of financial development indicators (financial efficiency and financial depth) on economic growth in Iran.
Therefore, in this study, the long-term and short-term effects of financial efficiency indicators and financial depth on economic growth in Iran's economy during the period from 1983 to 2021 were investigated in a time series.
According to the results obtained from the research, it can be stated that:
The volume of liquidity can lead to economic growth if it can provide a suitable basis for the optimal allocation of resources and increase capital efficiency.
Savings can be important as one of the sources of economic growth in the long term, but it cannot be considered as the cause of economic growth in Iran in the short term.
Simply granting facilities to the private sector cannot guarantee financial efficiency, but the way these resources are used and spent is in the direction of economic growth and development, which will show financial development.
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