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The development in financial and banking sectors is an integral part of economic growth and development. The experiences of many developing countries show that reform driven policy in finance and banking system enhances economic prosperity and removes the macro investment impediment. This Paper evaluates the impact of Linearization policies (or financial restriction) and also changes in real interest rate on deposit and credit of financial sector development in Iran, over the period 1969-2003. The results show that there is a significant and negative relationship between restriction (and reserves control) and financial development. Also, there is significant relationship between changes in banking real interest rate (credit and deposit) and financial development. While the increase in real interest rate on informal markets leads to demand transfer from informal market to formal market and consequently towards the expansion of financial market in Iran. Therefore, low real interest rate, with regard to other policy considerations, would cause increase in potential investment and will improve the proper use of resources in the economy.

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Casual relationship between financial developments and economic growth is one of the striking empirical macroeconomic relationships. Following the development of financial issues, our attention turns from economic growth to another issue of economic welfare. In this study, we try to examine the relationship between financial developments, economic growth, poverty and inequality in OPEC countries. The simulation of the models and statistical inferences, in this study, are based on the static and dynamic panel data approach. The empirical models are estimated by using GMM estimators, fixed effects and random effects using the data between 1990 and 2004. The results of this study show that financial developments through its effect on economic growth can mainly contribute poverty alleviation and inequality reduction in these countries.

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Economic liberalization policy has been among the major concern of the governments during the last few decades. However, its impact on economic growth is still a controversial issue. The aim of this paper is to examine the impact of trade liberalization and financial development on economic growth in Iran using annual observations over the period 1973-2007. The current study would use ARDL technique to estimate the empirical model. The findings of this paper indicate that there is a long run positive and significant relationship between trade liberalization and financial development and economic growth in Iran over the period of the study. The error correction coefficient is around 0.32 showing that the adjustment towards the long run equilibrium takes place within almost three years. The Granger causality test indicates that causality runs from trade liberalization and financial development to GDP.

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Achieving a high and sustainable economic growth has always been the main target of economic plans in different countries. Proving a positive relationship between financial development and economic growth by many studies has convinced the researchers to study the effective factors on the growth and development of financial markets. Inflation is one of the main factors that have a great impact on the countries’ financial development. So, the focus in the studies has mainly been on explaining the form of relationship between inflation and financial development. In this paper, the relationship between inflation and financial market development in Iran during 1978 to 2007 for the money market and during the summer of 1999 to spring of 2008 for the capital market has been reviewed. Econometric model of this research has been specified according to Boyd, Levine and Smith model (2001). Firstly, a simple linear model is used for controlling other economic factors that may be correlated with financial market performance. Then, a threshold regression is handled for explaining the nonlinear relationship between inflation and financial market development. In this model, different thresholds that limit inflation are considered. Conditional least squares method (CLS), is applied for estimating the model. The threshold limit for inflation has been determined based on the minimum error sum of squared criterion. The results of the estimated model indicate that a negative relationship between inflation and financial development indexes of money market. This positive relationship also exists between inflation and stock market development indexes. In the same way, the output of the estimated models has shown that in the some domain of inflation, the negative relationship between inflation and financial development indexes of money market is not significant.  In addition, the results of the estimated models revealed that there is no a threshold limit for the impact of inflation on the stock market.  

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The relationship between financial and real sectors of economy has been considered in various economic studies. This paper investigates the effect of financial system structure on economic growth using Dynamic Panel method (GMM) for 39 countries during 2000-2009. The estimation results show that financial structure has no significant effect on economic growth in both the entire set and developed countries, while this effect is significant in developing and emerging countries. In other words, real sector performance in market-based financial system is better than bank-based financial system in developing and emerging countries. In addition, financial development has significant and positive effect on economic growth in entire set of countries, and this effect is higher in developing and emerging countries than developed countries.

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This study examines the relationship between financial development and income inequality in Iran using bounds testing approach over the period of 1973-2010. In this study the domestic credit to private sector (% of GDP) and the ratio of liquidity to GDP are applied as proxies for financial development. The empirical results indicate that a negative and linear relationship between financial development and income inequality exists. Financial development significantly reduces income inequality in Iran. However, there is no evidence of an inverted U- shaped relation between financial development and income inequality, as suggested by Greenwood and Jovanovic (1990). The empirical findings also suggest that the enhanced institutional quality results in reduced income inequality in Iran.

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One century has passed since the explanation of relationship between financial development and economic growth by Schumpeter. However, there are serious debates among economists in this regard. Especially, the causality relationship between economic growth and financial development, in most of the cases, the causality from economic growth to financial development is confirmed in different countries. One of the neglected issues in this field is to consider the infrastructures, which can play important roles in the effectiveness of financial development on economic growth. One pillar of the financial development is the quality of banking financial services, which to a great extent is influenced by ownership and intervention of government in banking system. This paper, by using VECM model, tests the tri-variate causality among economic growthand financial development in the presence of public ownership of banks index during 1980 to 2010. The results show that in contrast to the bi-variate causality tests, which indicate the adverse causality from economic growth to financial development, the tri-variate causality tests reject this claim except for the case of the commercial banks’ assets.  

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Many studies have investigated the effects of economic growth, energy consumption and foreign trade on the pollutant emissions due to fossil fuels combustion. The consideration of financial development together with economic growth results in significant differences among findings. This paper examines the effects of financial development on environmental quality of Iran during 1973-2007 using an ARDL (Auto Regressive Distributed Lags) model. According to the results, the negative coefficient for financial development index shows the adverse effect of financial development on carbon dioxide (CO2) emissions. Therefore, it is expected that increasing financial development will reduce the CO2 emissions.  

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Distribution of income in society is so important that almost all economists consider it as one of the main aims and missions of the government. As credit constraints cause inequality in society, thus the development of financial intermediaries and financial markets in national level, which affects access of the low-income and poor individuals to credit and financial services, can influence significantly income redistribution in the country. This study aims to examine the relationship between financial development and inequality among the Iranian provinces. By using fixed effects panel data model, and applying Galor-Zeira theory, the relationship between financial development and income distribution is tested in Iran during 2000-2011. The results show that increasing proliferation of financial intermediaries has negative impact on Gini coefficient and results in more equitable income distribution across the provinces.

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Since financial development can contribute to the development of human capital, this paper examines the effect of financial development on human capital formation in Iran during 1973-2010. Regarding financial development as a multifaceted concept, this article first deals with constructing a multidimensional index, including ratio of M₂to GDP, ratio of private debt to banks to GDP, ratio of central bank assets to GDP and  the ratio of assets of deposit-accepting banks to GDP, using principal components analysis with SAS. Then, using Auto-Regressive Distributed Lags (ARDL) model, the effect of financial development on human capital is estimated through Microfit 4. The results suggest that financial development has significant positive effect on human capital in the short- and long term, and the magnitude of influence is higher in the long term than short term.  

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Optimal performance of an economic system depends on the presence of efficient, strong, and supplementary real and financial sectors. Working together of them is necessary and sufficient condition for the survival of the economic system in general. This study aims to explain the impact of transaction cost on financial development for OPEC members during 1990-2012. In the present study, the effect of transaction costs on financial development is estimated by an econometric model according to Baltagi et al (2007). In this regard, the index of the banking sector efficiency (private credits) is used to explore the development of the banking sector, and stock market turnover ratio (in percent) and Total Value (of shares) Traded (TVT)/GDP (in percent) is used to study the development of the non-banking sector. Explanatory variables include the transaction costs, the government size, the per capita income, and degree of openness of economy. The estimation results using Panel Data indicate that the transaction costs affect financial development significantly; and the reduced transaction costs result in increasing financial development. With regard to property rights, we conclude that guaranteed property rights raise the financial development. Also, per capita income and government size have positive and negative relationships with financial development, respectively.

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Underground economy is considered as an important economic component among the world countries, and in particular developing countries. It creates a serious consequence in the economy and could lead to a deviation from the correct diagnosis of economy status and as a result prescription of the mistaken policies. Therefore, identifying the size of underground economy and using corrective measures to reduce and control it is the main concern of policymakers. Financial development is among factors affecting the performance of underground economy. It reduces the cost of credit and decreases the incentives of agents in the underground sector. This study aims to investigate how to financial development affect underground sector. To this end, it uses structural equation modeling and multiple indicators – multiple causes (MIMIC) approach. The results suggest that the average ratio of the underground economy to GDP is equal to 20.68% during 1973-2012. For one unit increase in financial development, on average, the size of the underground economy decreases by 0.05 percent.

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Development of financial markets plays a major role in economic development. The present study estimates the effect of inflation on the relationship between financial development and employment using STR smooth transition regression model in Iran during 1992-2014. The results show that when inflation increases beyond threshold level, quasi-money negative effects on unemployment rate are intensified, and an increase in quasi-money has greater effect on increase in employment. Furthermore, increase in inflation rate and passing threshold level, and increase in capital market volume and domestic credit granted to private sector result in decreasing employment rate. The effect of monetary base on unemployment rate is positive in both regimes, but higher inflation (passing the threshold level of inflation) has intensified the positive effect of monetary base on unemployment rate. In other words, an increase in inflation rate has increased the monetary base, which in turn has reduced the employment level.

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Monetary policy is an effective tool in influencing the macroeconomic variables such as production, employment and the general level of prices. The theoretical literature and empirical evidence show that the effects of monetary policy on macroeconomic variables are asymmetric depending on the level of development and depth of financial markets. The aim of this study is to evaluate the role of financial development in the effectiveness of monetary policy on real output growth during business cycles. To this end, the effect of monetary policy on the real output growth is examined by applying a Markov-switching model and using the quarterly time-series data of Iran during 2001:1 to 2013:4. The results show that the effect of monetary policy on the real output growth during the recessions is significant and positive, while it is insignificant in the boom periods. In other words, the effect of monetary policy on the real output growth is asymmetric. Moreover, the results show that the net effect of monetary policy on the real output growth during business cycles depend on the level of financial development. During business cycles, if the level of financial development increases, then the effects of monetary policy on real output growth will decrease.

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Income distribution is of crucial importance for policymakers from the social justice viewpoint.  In recent years, financial tools and intermediaries have been developed in the global economy. Thus, investigating the impact of financial development on the income inequality has attracted the attention of economic researchers. Financial development affects income distribution through both channels of economic growth (directly) and increasing access to financial services (indirectly). Many studies have been conducted regarding the effects of financial development on income distribution in Iran with different methods and indicators, and even contradictory results. This study analyzes the effect of financial development on income inequality using various indicators and the structural vector auto-regression (SVAR) approach. The findings confirm the direct effect of financial development on income inequality, or the inequality-narrowing hypothesis, though they have no decisive implication on the indirect effects of financial development on income inequality, or the inequality-broadening hypothesis.

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Payment systems are the main components of the financial system of each country, which play effective roles in the rapid, efficient and safe transfer of funds among markets and various agents in the financial system, as well as in improving the efficiency of the financial system. These systems facilitate the carrying and using cash in the form of a payment card, and reduce the risks of theft or loss of cash. They reduce the risks of illness transmission compared to the exchange of notes, and allocate the income accrued to the deposit account as a bank profit. In addition, such systems lower the transaction costs and bank charges, and speed up the financial exchanges. Any electronic payment is possible from the platform of these systems. The identification of the effects of electronic payments on different economic and financial sectors is of great importance. This paper aims to investigate the impact of card payments, as a part of electronic payments, on the financial development among the Iranian provinces by using panel data approach. The estimations by Panel Least Squares method indicated that during the period of 2007-2016, the number of points of sales (POSs), the number of automatic teller machines (ATMs), and sum of number of POSs and ATMs as indicators of card payments had positive and significant effects on the ratio of facilities to deposits as an indicator of financial development.

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Financial development is one of the most important causes of economic growth in the long run. The study of factors affecting economic growth, as a key economic target, is of great importance. In this paper, the effect of financial development on the economic growth is studied in Iran during 1989 to 2016. In order to increase the accuracy and flexibility of results, this paper uses the Time Varying Parameter Factor Augmented VAR (TVP-FAVAR) model, which makes possible to change coefficient and to contribute the individual variables at any point of time. First, the latent variable for financial development is estimated in the Iranian economy. Then, a model is specified including the variables of liquidity volume, oil revenues, economic growth and financial development. The results of the impulse- response functions show that a shock to the financial development has a positive effect on economic growth during the period under study. In addition, the shock from oil revenues only leads to an increase in economic growth over the short term and adjusts over several years, while the liquidity shocks have no significant effects on economic growth in most years.

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Many studies have confirmed the acceleration of economic growth through financial development, but just a few studies have discussed the disproportionate effect of financial development on the growth of the firms with different sizes. So the distributional effects of financial development among firms are still unclear. Accordingly, using a dynamic panel model, we have examined the role of small firms in different industries on the effect of financial development on industrial development of Iranian economy. This study has been carried out on 22 industries according to ISIC4 two-digit codes for the period 1383-1393 (Iranian Calendar) using the Generalized Moment Method (GMM). The results of the model confirm that the development of financial intermediaries exerts a positive effect on the industries with a bigger technical share of small firms. In other words, financial development through banking development has a more positive effect on small firms than large firms. This result is not valid for the development of the stock market.

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