The Relationship between Economic Growth, Energy Intensity and Financial Development in Sectors of Iranian Economy

This study investigates the relationship between economic growth, energy intensity and financial development in the agricultural, industry and mining and services sectors of the Iranian economy. For this purpose, annual time series data of the sectors during the period from 1974 to 2016 were used. To analyze the relationships, Autoregressive Distributed Lags (ARDL) and Structural Vector Autoregressive (SVAR) methods were used. The results of the long-run relationship of the ARDL model show that the impact of energy intensity on the economic growth of industry and mining, and services sectors is negative and significant and positive and significant in agriculture sector. The effect of financial development on economic growth in agriculture sector and industry and mining sector is positive and significant, while despite the positive impact of financial development on economic growth in services sector, the coefficient of this variable is not statistically significant. Furthermore, based on the results of variance decomposition in SVAR model, energy intensity growth and financial development growth have had a large share of economic growth fluctuations in different sectors of Iranian economy. Similarly, economic growth and financial development have also played a significant part in the energy intensity fluctuations of the sectors. Finally, energy intensity has the largest share of fluctuations in financial development in industry sector, while the economic growth has also played a considerable part in the fluctuations of financial development in the services sector.