Presenting a Model of the Relationship between Green Finance, Fintech, and Economic Development in Iran

Abstract

In this study, we aim to present a model of how green finance, fintech, and economic development are related in Iran. To this end, using the Principal Component Analysis (PCA) model in the first section, the green finance index was calculated, and in the second section, utilizing the Markov-Switching regime change model (MS), the effect of the studied variables was analyzed on an annual basis over the period from 1996 to 2022. Based on the weights obtained for the green finance index, the share of renewable energies has the most significant impact on the composite index of green finance. Following that, energy efficiency and real GDP per capita have the next highest impacts. According to the estimated results of the model, during periods of economic boom, for each unit increase in green finance, fintech, employment, education, and capital, the country's economic development increases by 21, 7, 17, 19, and 14 units, respectively. Green finance can affect the economic development index through various factors, such as the faster adoption of advanced technologies from developed countries, increased benefits from research and development programs, achieving larger economies of scale, reducing price deviations and fluctuations, and thus, more efficient use of domestic resources across sectors, and faster supply of new goods and services. The increase in economic development, accompanied by a rise in GDP, will lead to higher production and exports, which, while requiring an increase in green finance, also influences economic development. Therefore, attention to the issue of maintaining economic development stability in the country should be among the issues that are prioritized by officials and government authorities above all else.