Investigating the Causal Nexus Between Economic Growth, Banking Sector Development, Capital Markets Development and Macroeconomic Variables in Iran

Subject Areas : Financial Economics

Zarir  Negintaji ¹ (Department of Economics and Political Sciences, Faculty of Economics and Political Sciences, Shahid Beheshti University, Tehran. Iran.)
Hassan  GolmoradiAdinevand ² (Department of Banking Sciences, Higher Banking Education Institute, Iran)
MortezaAli  Sadeghinejad ³ (Department of Banking Sciences, Higher Banking Education Institute, Iran)

Received: 2022-07-15 Accepted : 2022-09-17 Published : 2022-11-22

Keywords: E31, E44, O16, O43, Keywords: Banking Sector Stock Market Economic Growth Granger Causality, Principal Component Analysis (PCA) Method. JEL classification: E00, G00, O40,

Abstract :

AbstractOne of the most important issues of economics is investigating the factors affecting economic growth and their impact. Some theorists believe that the development of the financial sector, including the development of the banking sector and the capital market, along with macroeconomic factors can provide the necessary basis for increasing economic growth. Indeed, there is a serious argument that a weakened financial system are trapped in a vicious circle where low levels of financial development will lead to poor economic performance and poor economic performance will lead to lower financial development.This study examines the relationship between economic growth, banking sector development, capital market development and some important macroeconomic variables. For this purpose, first the combined indicators of banking sector development and capital market development based on the principal component analysis (PCA) method are applied and then using vector autoregressive model and the Granger causalities test, Causal nexus between variables for time series data of Iranin economic between 1363-1397 Is examined.The results of this study show that there is a mutual Causal nexus between economic growth and financial development both in terms of banking sector development and capital market development, so financial development in terms of both banking sector development and market development Capital have reciprocal relation with economic growth. The causality between the development of the banking sector and the capital market is also two-sided and this suggests the importance of integrated financial sector development.

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