Financial development and economic growth in Iran

Abstract

In this paper we investigated the long run relationship between financial depth and economic growth and also their influences on each other in Iran and for years 1975-2008. In this purpose vector autoregressive model (VAR) has been used. First, stable of variables by the use of dickey-fuller test has been examined. Next, analysis of Johnson test for considering the convergence among variables has been used. The results of this research show that the variables Trade to GDP ratio, the share of gross fixed capital formation to nominal GDP, Inflation rate have a positive effect on gross domestic product growth rate. Financial development provided possibilities of economic growth through an augmentation of efficiencies investment. © EuroJournals, Inc. 2011.