Document Type : Research Paper
Author
Assistant Professor, Banking Studies Department, Monetary and Banking Research Institute, Tehran, Iran
Abstract
Today, the significance of the presence and emergence of fintechs—particularly those active in the financial sector—is widely recognized. This importance is reflected in the growing number of recent studies that examine fintech performance and its relationship with macroeconomic indicators at the international level. Global experiences indicate that fintech has substantially contributed to promoting economic growth and controlling inflation by expanding access to financial services. In Iran, more than 50 active fintech companies have entered various areas of the banking business model, suggesting that their presence can influence macroeconomic performance. Enhancing economic growth has been a primary concern for policymakers in recent years, which raises several key questions. First, how does the emergence and presence of fintech impact economic growth? Second, does the impact of fintech on economic growth vary under different conditions of inflation, liquidity, exchange rates, and stock price index? Using time series data from 1991 to 2023, the present study aimed to examine these questions. The ARDL method was employed to assess both the short-term and long-term effects of fintech on economic growth. Furthermore, the threshold regression method was applied to examine the impact of fintech under different levels of inflation, liquidity, exchange rates, and stock price index. The results of the autoregressive method with a structural break indicated a positive effect of fintech on economic growth. The threshold regression results further revealed that the effect of fintech on economic growth would vary across different macroeconomic variables.
Introduction
The development of the financial sector is a key driver of economic growth and GDP expansion. Rapid digitalization and technological advancements—such as digital currencies, artificial intelligence, mobile payments, and online trading—have profoundly transformed the financial system. These innovations, collectively known as financial technology (fintech), not only reshape financial operations but also create new opportunities for investors. According to the Financial Stability Board (2021), fintech refers to technological innovations in financial services that have the potential to alter business models, products, and market structures. Fintech enhances financial inclusion, lowers transaction and transfer costs, improves income flows, and supports investment and productivity. Through these channels, it influences consumption, savings, employment, and wealth creation, thereby fostering economic growth. Building on the endogenous growth model, the present study aimed to analyze the impact of fintechs on economic growth using data-driven approaches inspired by Narayan (2019) and Mshamba and Gani (2023). Previous empirical research indicates both positive long-term and negative short-term effects, with some evidence suggesting a U-shaped relationship—initially negative but turning positive as fintech matures. To examine this behavior, four hypotheses were explored, each focusing on the role of macroeconomic thresholds: inflation, exchange rates, liquidity, and stock price index.
Materials and Methods
The study relied on annual macroeconomic and fintech data for the period 1991–2023 (1370–1402 S.H.) to examine the dynamics of fintech’s impact on economic growth within an endogenous growth framework. The number of active fintech firms served as a proxy for fintech activity, in line with World Bank (2022) measurements, which highlight firm creation as the most accessible global indicator. Two complementary econometric approaches were employed. First, the autoregressive distributed lag (ARDL) model was used to analyze short-term and long-term dynamics. Second, the threshold regression (TR) model was applied to capture nonlinear effects under varying macroeconomic regimes. Specifically, four threshold variables (i.e., inflation, exchange rates, liquidity, and stock price index) were considered to examine whether the impact of fintech on growth varies across these conditions. Economic growth was the dependent variable, while sectoral credit ratios and investment rates were considered as control variables. By combining these models, the study provided a comprehensive assessment of fintech’s impact on economic growth and its interaction with macroeconomic fluctuations.
Results and Discussion
The results demonstrate that fintech plays an increasingly significant role in the modern economy, operating alongside traditional banks and influencing key macroeconomic variables—particularly economic growth. Empirical evidence confirms that the relationship between fintech development and growth is nonlinear; with effects that can be either positive or negative depending on prevailing macroeconomic conditions. Using the ARDL approach, the study confirmed a well-fitted model in which fintech exerts an overall positive effect on economic growth. However, analysis of macroeconomic thresholds—inflation, exchange rates, liquidity, and stock price index—revealed important nonlinear patterns. When inflation or exchange rates exceed critical thresholds, fintech’s impact on growth becomes negative, primarily due to rising investment, increased operational costs in technology infrastructure, and reduced financial accessibility. Similarly, excessive liquidity can heighten inflationary pressures, thus undermining fintech’s positive effects. In contrast, across varying levels of the stock price index, fintech consistently demonstrates a positive effect, reflecting its role in enhancing market efficiency and investor confidence.
Conclusion
According to the findings, fintech’s impact on economic growth is contingent upon macroeconomic stability. This study addressed a significant empirical gap by highlighting these threshold-dependent effects. It concludes that future research should further investigate the nonlinear (potentially U-shaped) relationship between fintech and economic growth, particularly through interaction terms that link fintech with macroeconomic variables.
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