The effect of effective governance and quality of regulations on financial development in the current economic conditions of Iran

Subject Areas : Financial Econometrics

Kamran Sarhangi ^{1 *} , Mohammad Javad Mohaghegh Niya ² , Maghsoud Amiri ³

1 - Department of Financial Management , Allameh Tabatabai University , Tehran, Iran
2 - Department of Finance and Banking, Faculty of Management and Accounting, Allameh Tabatabai University ,Tehran, Iran
3 - Department of Industrial Management, Faculty of Managemennt, and Accounting , Allameh Tabatabai University, Tehran, Iran

Received: 2021-04-11 Accepted : 2021-06-30 Published : 2021-10-01

Keywords: effective governance , quality of regulation, financial development, and threshold approach model JEL Classification: O23 E43, G21,

Abstract :

The present study investigates effective governance and quality of regula-tions on financial development in Iran's current economic conditions. For this purpose, the model is estimated based on the annual data of 1996-2018 using Smooth Transition Autoregressive (STAR). The results of estimating the linear part of the model (first regime) show that the variables of GDP, role or the rule of law, quality of regulations, and government size have a significant and positive impact on Iran's financial development at 95% confi-dence level. Also, the variables of devaluation of the national currency and financial crises have a negative impact on financial development in the Irani-an economy. Besides, the results of the non-linear part of the model (second regime) show the existence of a positive relationship between the variables of role or the rule of law and GDP with financial development. The sign of the variables of quality of regulations, government budget deficit, govern-ment effectiveness, devaluation of the national currency, nuclear sanctions, and financial crises are negative that is expected because Iran is developing and growing. The positive sign of the lag of the dependent variable of the financial development index shows the country's attention to the issue of financial development and the use of solutions and attention to infrastructure to increase financial development over time, which needs more attention from government officials.