Financial System Performance and Economic Growth in Iran: Some Stylized Facts

Document Type : Scientific-research

Authors

1 Assistant Researcher in Economics, Institute for Humanities and Cultural Studies

2 Yazd University

3 M.A. Student of Economics, Tarbiat Modares University

Abstract

To reply to the question of whether financial development leads to economic growth or financial development benefits come from economic growth, macro-financial economics literature suggests testing a two-way and even non-linearity relationship. In this paper, by applying markov-switching approach, we investigate the two-way linkage between universal financial development indicators (in aspects of depth, international flows, access, efficiency, and stability) and total and sectoral (agriculture, industry, and services) growth in 3rd to 11th cabinet after the revolution (1982-2017). Evidence reveals that there are co-movements between different aspects of financial development and real sector growth regimes (except 9th and 10th cabinets); such that, ome stylized facts are supporting the financial services supply-leading hypothesis. Moreover, there are more than 60 notes (in 1st and 2nd development programs) and articles (in 3rd, 4th and 5th development programs) related to the financial system, which are made without a comprehensive strategy and are based on financial repressions and sectoral discriminations; therefore, they did not contribute to "balanced financial development".
 

Keywords

References

ناجی میدانی، ع. ا.، مجتهدی، س. و ابوترابی، م. (1392). بررسی اثر ساختار بازار سرمایه بر رشد اقتصادی بخش‏های مختلف اقتصاد ایران. اولین همایش توسعه پایدار با رویکرد بهبود محیط کسب و کار. اتاق صنایع، معادن و کشاورزی خراسان رضوی: مشهد.
نیلی، مسعود و راستاد، مهدی (1382). توسعه مالی و رشد اقتصادی، مجموعه مقالات سیزدهمین کنفرانس سیاست‏های پولی و ارزی، نقش نهادهای مالی در توسعه اقتصادی: عملکرد و چشم‏انداز- تجربه ایران. پژوهشکده پولی و بانکی، صفحات 96-71.
Adeniyi, O., Oyinlola, A., Omisakin, O., & Egwaikhide, F.O. (2015). Financial Development and Economic Growth in Nigeria: Evidence from Threshold Modeling. Economic Analysis and Policy, 47, 11‐21.
Aghion, P., Angeletos, G.M., Banerjee, A., & Manova, K. (2010). Volatility and Growth: Credit Constraints and the Composition of Investment. Journal of Monetary Economics, 57, 246-265.
Aghion, P., & Durlauf, S. (Eds.). (2005). Handbook of Economic Growth (Vol. 1) Elsevier.
Ang, A., & Bekaert, G. (2002). Regime Switches in Interest Rates. Journal of Business & Economic Statistics, 20(2), 163-182.
Arcand, J., Louis, B.E., & Panizza, U. (2015). Too Much Finance. Journal Economic Growth, 20, 105-148.
Bagehot, W. (1873). Lombard Street: A Description of the Money Market. 1962 ed. Irwin, Homewood, IL.
Beck, T., Buyukkaraback, B., Rioja, F.K., & Valev, N.T. (2012). Who Gets the Credit? And Does It Matter? Household vs. Firm Lending Across Countries. The B.E. Journal of Macroeconomics, 12, 1-46.
Bencivenga, V., & Smith, B. (1991). Financial Intermediation and Endogenous Growth. Review of Economic Studies, 58, 195-209.
Bell, C. & Rousseau, P.L. (2001). Post-independence India: A Case of Finance-Led Industrialization? Journal of Development Economics, 65, 153-175.
Bittencourt, M. (2012). Financial Development and Economic Growth in Latin America: Is Schumpeter Right? Journal of Policy Modeling, 34, 341-355.
Cecchetti, S. C., & Kharroubi, E. (2012). Reassessing the Impact of Finance on Growth. Bank of International Settlement Working Paper No. 381, Basel: Switzerland.
Choe, C. & Moosa, I.A. (1999). Financial System and Economic Growth: The Korean Experience. World Development, 27, 1069-1082.
Davies, R. B. (1977). Hypothesis Testing When a Nuisance Parameter is Present Only Under the Alternative. Biometrika, 64(2), 247-254.
Demetriades, P., & Law, S. H. (2006). Finance, Institutions and Economic Growth. International Journal of Finance and Economics, 11(3), 245–260.
Demetriades, P., & Hussein, K. (1996). Does Financial Development Cause Economic Growth? Evidence for 16 Countries. Journal of Development Economics, 51, 387-411.
Demetriades, P.O. & Luintel, K.B. (1996). Financial Development, Economic Growth and Banker Sector Controls: Evidence from India. Economic Journal, 106, 359-374.
Ductor, L., & Daryna, G. (2015). Financial Development, Real Sector, and Economic Growth. International Review of Economics & Finance, 37(1), 393-405.
Goldsmith, R.W. (1969). Financial Structure and Development. Yale University Press: New Haven.
Gurley, J.G., & Shaw, E.S. (1955). Financial Aspects of Economic Development. The American Economic Review, 45(4), 515‐538.
Gupta, K. L. (1984). Finance and Economic Growth in Developing Countries. Croom Helm: London.
Greenwood, J., & Jovanovic, B. (1990). Financial Development, Growth, and the Distribution of Income. Journal of Political Economy, 98(5, Part 1), 1076-1107.
Hamilton J. D. (1989). A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle. Econometrica, 57, 357-384.
Hassan, K. M., Sanchez, B. and Yu, J.S. (2011). Financial Development and Economic Growth: New Evidence from Panel Data. The Quarterly Review of Economics and Finance, 51(1), 88-104.
Hicks, J. (1969). A Theory of Economic History. Clarendon Press: Oxford.
King, R.G., & Levine, R. (1993). Finance and Growth: Schumpeter Might Be Right. The Quarterly Journal of Economics, 108(3), 717-737.
Luintel, K.B., & Khan, M. (1999). A Quantitative Reassessment of the Finance–Growth Nexus: Evidence from a Multivariate VAR. Journal of Development Economics, 60(2), 381-405.
Levine, R. (1997). Financial Development and Economic Growth: Views and Agenda. Journal of Economic Literature, 35(2), 688‐726.
Lucas, R.E. (1988). On the Mechanics of Economic Development. Journal of Monetary Economics, 22, 3-42.
Manning, M.J. (2003). Finance Causes Growth: Can We Be So Sure? The BE Journal of Macroeconomics, 3(1), 1-24.
McKinnon, R. I. (1973). Money and Capital in Economic Development. Brookings Institution: Washington, DC.
Miller, M.H. (1998). Financial Markets and Economic Growth. Journal of Applied Corporate Finance, 11, 8-14.
Neusser, K. & Kugler, M. (1998). Manufacturing Growth and Financial Development: Evidence from OECD Countries. Review of Economics and Statistics, 80, 638-646.
Odedokun, M.O. (1996). Alternative Econometric Approaches for Analysis the Rule of the Financial Sector in Economic Growth: Time-Series Evidence from LDCs. Journal of Development Economics, 55, 119-146.
Oro, O. U., & Alagidede, P. (2018). The Nature of the Finance-Growth Relationship: Evidence from a Panel of Oil-Producing Countries. Economic Analysis and Policy, 60(C), 89-102.
Patrick, H.T. (1966). Financial Development and Economic Growth in Underdeveloped Countries. Economic Development and Cultural Change, 14(2), 174‐189.
Quandt, R.E. (1972). A New Approach to Estimating Switching Regressions. Journal of the American Statistical Association, 67(338), 306-310.
Ritab, S. (2007). Financial Sector Development and Sustainable Economic Growth in regionally Co-integrated Emerging Markets Issues in Corporate Governance and Finance. Advances in Financial Economics, 12, 345-360.
Robinson, J. (1952). The Generalization of the General Theory. Macmillan: London.
Romer, P. M. (1986). Increasing Returns and Long‐Run Growth. Journal of Political Economy, 94(5), 1002‐1037.
Rousseau, P.L., & Wachtel, P. (2000). Equity Markets and Growth: Cross-Country Evidence on Timing and Outcomes, 1980-1995. Journal of Banking & Finance, 24(12), 1933-1957.
Rousseau, P.L., & Wachtel, P. (2011). What Is Happening to the Impact of Financial Deepening on Economic Growth? Economic Inquiry, 49(1), 276-288.
Rousseau, P.L. and Vuthipadadorn, D. (2005). Finance, Investment, and Growth: Time Series Evidence from 10 Asian Economies. Journal of Macroeconomics, 27, 87-106.
Sassi, S., & Gasmi, A. (2014). The Effect of Enterprise and Household Credit on Economic Growth: New Evidence from European Union Countries. Journal of Macroeconomics, 39, 226-231.
Schumpeter, J.A. (1912). The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest, and the Business Cycle. Harvard University Press: Cambridge.
Swamy, V., & Dharani, M. (2019). The Dynamics of Finance-Growth Nexus in Advanced Economies. International Review of Economics & Finance, 64, 122-146.
Shaw, E.S. (1973). Financial Deepening in Economic Development. Oxford University Press: New York.
Trablesi, M. (1998). Finance and Growth: Empirical Evidence from Developing Countries 1960-1996. Working Paper 0228, Economic Research Forum.
Williams, K. (2018). Has the Finance-Growth Link Been Broken? Panel Data Evidence from Latin America and the Caribbean. EconomiA, 19(3), 404-423.
Xu, Z. (2000). Financial Development, Investment, and Economic Growth, Economic Inquiry, 38, 331-344.
Journal of Iranian Economic Issues
Volume 7, Issue 2
January 2021
Pages 1-31

Files

History

  • Receive Date: 31 May 2020
  • Revise Date: 29 July 2020
  • Accept Date: 09 September 2020

Share

How to cite

Statistics