Direct and indirect effects of financial development on economic growth in Iran
Subject Areas : Financial Knowledge of Securities Analysisفاطمه شمس الاحرار فرد 1 , اسفندیار جهانگرد 2
1 - مسئول مکاتبات
2 - ندارد
Keywords: model of FI ML VECM,
Abstract :
Emergence of a group of countries with the same growth path and divergenceincreasing augmentation between growth performance of different groups of countriescause ever increasing interest to review the effect of financial sector on the process ofeconomic growth in texts in an international level.Texts in which the relationshipbetween financial system and economic growth is discussed are divided into twodistinct groups. Financial liberalization and financial repression. In texts whichfinancial liberalization is being supported, currency or financial system makeeconomic growth in a country, while in texts which the financial repression is beingsupported currency or financial system is considered as an obstacle. Recentinternational theoretical and practical findings emphasis on ever increasing financialsystem in explaining economic growth. They support the necessity of a strongfinancial sector with minimum financial crisis for economic growth. Internationalevidences show the indirect relation between financial sector and growth of both directand by increase in investment rate and productivity of total factors. Moreover there areevidences about bilateral relationship between financial sector and real sector ofeconomy. This thesis shows possibility of existence of direct and indirect effects andfeedback. So from the appropriate approach of vector error correction model, themaximum likelihood with complete information of Johansen is used and also forreviewing the direction of relationship between variables and determination ofdirection of relationship between financial sector and real sector of economy themethod of Shins sons’ and smith Autoregressive Distributed Lag Model is used. InIran the period which is being studied is1350-85. This thesis represents the progresscompared to the past. First two models are used for estimating. The first model onlyreviews the effects of direct and indirect financial sector on real sector of economy.While in the second model the first model is completed with considering thepossibility of existence of effects of feedback between financial and real sector.second, in this paper the model of (FI ML VECM Full Information MaximumLikelihood vector error correction model) is used to review the possibility of existenceof multiple relationships between financial sector and real sector. The result is that inIran during 1350-85 there is a positive and significant relationship between financialdevelopment and economic growth because obtained relationship shows that grossdomestic product per capita has positive influence on volume of liquidity(as one of theindex of financial development) and also the direction of relationship betweenfinancial development and economic growth is unilateral. And since there is aunilateral relationship between variables of financial developments and investment,there is no possibility of feedback effects in this model.
