Calculating Financial Complexity in Iran’s Economy

Subject Areas : Financial Economics

Fatemah Poorabdullah ¹ , Seyed-nezamuddin Makiyan ² , مهدی حاج امینی ³

1 - Economics Dept., Yazd University
2 - Economics Dept., Yazd University
3 - عضو هیات علمی گروه اقتصاد دانشگاه یزد

Received: 2024-12-27 Accepted : 2025-03-11 Published : 2025-09-06

Keywords: Financial Complexity, Financial Network, Kolmogorov Complexity,

Abstract :

The development of technology may lead to increased complexity and inter-dependence in all aspects of life. Financial section of any economy can be analyzed in terms of complexity. Despite of increasing the speed and efficiency in this sector as result of complexity, this can create challenges and problems. Hence, it is necessary to analyze complexity in financial network of Iran`s economy.

For investigating the complexity in financial sector for Iran`s economy, Kolmogorov method is applied and the necessary data are obtained from the World Bank by 2005 – 2021. To doing this, at first, the adjacency matrix of the financial network of the Iranian financial system is calculated and, in second step this financial system is drawn in terms of the relationship between the important variables of the finance sector. In Kolmogorov approach, financial complexity is the level of randomness and unpredictability of the financial system. Analyzing the network of the financial system indicates that the finance sector of the economy is highly complex with the numerical value of 8/43. It can be interpreted, there is high systemic risk in the country's financial system. According to calculations, the financial sector in Iran is completely random and unpredictable. Moreover, the capital market in the Iran`s economy has not an effective role in the finance sector of the economy. In other words, the economy of Iran is bank oriented. Among financial institutions, banks and depository institutions play a key role in the economy.

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