The Effect of Financial Innovation on Iran's Economic Growth

An efficient financial market in the economy can cause economic growth by ensuring the optimal allocation of financial resources, efficient allocation of economic resources, and reducing the cost of capital by accelerating capital accumulation processes in the financial system. The relationship between financial innovation and economic growth has been one of the topics of concern for economists for the past few decades, and different views and opinions have been raised in this regard. In this article, three indicators of financial innovation, i.e. the ratio of liquidity volume to the volume of money in circulation, the ratio of bank credits to the private sector, and the penetration rate of the Internet on the economic growth of Iran during the years 1375-1399, using the auto-distributional regression model with a break (ARDL) in Short term and long term has been paid. The results show that the short-run credit ratio and the long-run ratio have a significant positive effect on Iran's economic growth. Also, trade liberalization has a positive effect on economic growth in the long-run. It is suggested that financial innovation expands financial activities in the economy with the emergence of new forms and structures of financial institutions, better financial services through technological advancement, improvement of financial products and capital accumulation by encouraging savings in society, which in turn leads to economic growth. In addition, an efficient financial sector requires financial innovation that allows efficient allocation of economic resources to productive methods.