Threshold Effects of Economic Growth on the Relationship Between Financial Development and Energy Diversification in Iran

Articles in Press

Document Type : Research Paper

Authors

1 Department of Economics, Faculty of Literature and Humanities, University of Ilam, Ilam, Iran.

2 Master's student in Economics, Faculty of Literature and Humanities, Ilam University, Ilam, Iran

10.22059/jte.2025.397675.1009015

Abstract

Financial development is a key factor in enhancing the economic dynamics of countries, while energy diversification is an important component in ensuring sustainable energy supply and reducing dependence on fossil fuel resources. This study examines the threshold role of economic growth in the impact of financial development, oil rent, and industrialization on energy diversification in Iran using data from 1980 to 2022 and the Threshold Autoregression (TAR) method. The results indicate that the effects of these variables on energy diversification depend on the economic growth threshold (per capita income of $3,704) in two distinct regimes. In the first regime, where economic growth is below the threshold, oil rent has a positive effect, whereas financial development and industrialization negatively impact energy diversification. In the second regime, where economic growth surpasses the threshold, the negative effect of industrialization diminishes, and financial development has a significant positive impact on energy diversification. These findings suggest that improving economic conditions alongside the simultaneous development of financial systems can help reduce dependence on fossil fuels and enhance the diversification of energy sources in the country.

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Journal of Economic Research (Tahghighat- E- Eghtesadi)

Articles in Press, Accepted Manuscript
Available Online from 29 October 2025

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History

  • Receive Date: 28 June 2025
  • Revise Date: 13 October 2025
  • Accept Date: 29 October 2025

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