Document Type : Research Paper
Authors
1 Associate Professor, Department of Economics, Ayatollah Boroujerdi University, Boroujerd, Iran
2 Ph.D. Candidate in Economics, Alzahra University, Tehran, Iran
Abstract
This study aimed to examine the threshold effect of fintech on the relationship between oil rents and economic growth in Iran. To analyze the relationships among variables, the study used a threshold regression approach and seasonal data from 2013 to 2022 in Iran. The results showed that oil rents had a significant negative impact on economic growth both before and after fintech reached its threshold level of 0.146. However, once Fintech surpassed this threshold, the magnitude of the resource curse effect on economic growth decreased. Additionally, the interaction effect between oil rents and fintech had a significantly negative effect on economic growth before fintech reached the threshold. After exceeding the threshold, however, the interaction effect became significantly positive, indicating that higher levels of fintech development mitigate the adverse impact of oil rents on economic growth. The inefficient allocation of oil revenues, accompanied by increased rent-seeking and corruption, constrains economic growth. In contrast, the expansion of fintech through digital technologies enhances access to financial services for firms and entrepreneurs in the non-oil sector. This improved access promotes employment and reduces the economy’s dependence on oil. Therefore, fintech development alleviates the negative effects of oil rents on economic growth. On the basis of the findings, it is recommended that the government promote the development of fintech platforms and blockchain technologies while strengthening oversight of oil revenue allocation within the public budget. In addition, policies should aim to facilitate access to capital for entrepreneurs and small businesses in high-technology sectors. Through optimal resource management and balanced development across production sectors, the negative effects of oil rents on economic growth can be reduced.
Introduction
The impact of natural resources on economic growth has long attracted the attention of researchers. Drawing on the resource curse hypothesis, some scholars argue that the mismanagement of natural resources can lead to corruption, increased unproductive investment, and rising economic inequality, all of which ultimately hinder economic growth (Yadav et al., 2024). Given the pivotal role of natural resources in encouraging economic growth, numerous studies have examined the validity of the resource curse hypothesis.
Empirical evidence suggests that the effect of natural resource rents on economic growth—whether positive or negative—depends on various contextual factors, including financial technology (fintech). Fintech refers to technology-driven financial innovations that affect financial markets, institutions, and service delivery, resulting in the emergence of new business models, products, and applications. On the one hand, fintech can promote economic growth in resource-rich countries by improving households’ and firms’ access to credit and reducing economic uncertainty. On the other hand, fintech can reshape the relationship between natural resource rents and economic growth by fostering exports, enhancing organizational performance, reducing dependence on natural resources, and improving resource management.
Therefore, it is essential to examine the role of fintech in the relationship between oil rents and economic growth in countries like Iran. A better understanding of how fintech influences this relationship can help policymakers design more effective strategies for managing oil revenues—mitigating the adverse effects of oil rents and potentially transforming the resource curse into a resource blessing. In this respect, the present study aimed to investigate the threshold effect of fintech on the relationship between oil rents and economic growth in Iran during 2013–2022.
Materials and Methods
The current study used the models proposed by Gao et al. (2024) and Li et al. (2024) to examine the threshold effect of fintech on the relationship between oil rents and economic growth. The dependent variable—gross domestic product (GDP)—was specified as a function of the interaction term between fintech and oil rent, oil rent, physical capital, labor force, human capital, government size, and a sanctions dummy variable. Fintech was measured by the total value of transactions conducted via the internet and mobile phones for online purchases and bill payments, capturing the payments dimension of fintech. Oil rents were measured as the ratio of the difference between the value of crude oil production and oil production costs to GDP. Human capital was measured by the number of university students in Iran, and the government size was measured as the ratio of government consumption expenditure to GDP.
All variables were expressed in log-differenced form, using quarterly data covering the period 2013–2022. The data was obtained from the Central Bank of Iran and the World Bank. Real values were calculated using the consumer price index (CPI), with 2016 as the base year. The model was estimated through a threshold regression approach, in which the interaction terms between oil rents and fintech, as well as between oil rents and government size, would appear in both regimes.
Results and Discussion
The estimated threshold level of fintech was 0.146, corresponding to 24.01 percent of the fintech index. Once fintech exceeds this threshold, the coefficients of the variables undergo a structural change. The coefficient of oil rents in the first and second regimes was –0.27 and –0.18, respectively. Similarly, the interaction coefficient between oil rents and fintech was –0.02 in the first regime and 0.004 in the second regime. According to the results, oil rents reduce economic growth in both regimes, confirming the presence of the resource curse in Iran. In the first regime, the interaction between oil rents and fintech had a negative effect on economic growth. However, in the second regime, as fintech developed beyond the threshold level, this interaction became positive and growth-enhancing.
The findings suggested that oil revenues, by fostering rent-seeking activities, tend to reduce economic growth. In contrast, fintech—by facilitating financial transactions through the internet and mobile phones—enhances financial inclusion. Improved financial inclusion increases entrepreneurs’ access to financial services, which in turn fosters export diversification. Furthermore, digital financial transactions enhance transparency and efficiency in tax collection, thereby reducing tax evasion. Lower levels of tax evasion increase government tax revenues and reduce reliance on oil income. Therefore, the expansion of fintech mitigates the resource curse effect.
Government size exhibited a nonlinear relationship with economic growth. In the first regime, government size had a negative and statistically significant impact on growth, whereas in the second regime it exerted a positive and significant effect. This suggests that in the early stages of fintech development, an expansion in government size may hinder economic growth due to inefficiencies. However, as fintech advances, a larger government—through improvements in social and economic infrastructure—can contribute positively to economic growth.
The results also indicated that growth in physical capital, labor force, and human capital all had positive and statistically significant effects on economic growth. Physical capital and labor are fundamental factors of production: the former enhances growth by expanding production capacity, while the latter contributes through division of labor and specialization. Human capital improves individual skills and productivity, thereby promoting economic growth. Finally, sanctions have a negative and significant effect on economic growth, as increased sanctions restrict access to international markets.
Conclusion
The findings indicated that in the lower regime—prior to reaching the threshold level—fintech remains underdeveloped and is therefore unable to mitigate the adverse effects of oil revenues on economic growth. However, once fintech surpasses the threshold, its continued expansion through the adoption of digital technologies improves firms’ access to financial services, particularly in the non-oil sector. Enhanced access to finance strengthens the capacity of non-oil firms to foster innovation and competitiveness, thereby reducing the dominant role of oil in the economy. Diminishing the centrality of oil also lowers the economy’s vulnerability to oil price volatility and geopolitical risks. Furthermore, by expanding access to financial services for households and entrepreneurs, fintech facilitates investment in human capital and contributes to higher employment levels. In addition, greater transparency in digital financial transactions reduces opportunities for corruption. Overall, by weakening the economy’s reliance on oil, promoting trade diversification, reducing dependence on oil exports, increasing employment, and curbing corruption, fintech development helps alleviate the resource curse in Iran.
Keywords
Main Subjects
)