An Investigation of the Effects of Government Effectiveness and Financial Development on Economic Growth: Some Evidence from Developing-8 Countries

Government effectiveness index is one of the six important indicators of good governance that may play an important role in country's economy by providing the conditions for full employment, price stability and the fair distribution of income within the framework of government intervention in the economy, social and political activities. The governments can play accurate and effective role in economic growth and development through the application of appropriate policies by providing institutional and social infrastructure, especially in the D-8 developing countries where there are institutional weaknesses. Generally developing countries in terms of physical and human resources are not facing serious problems, but it seems that they have many problems using these factors to achieve sustained and stable growth. In developing countries institutional deficiencies prevent optimal use and allocation of resources in these countries. On the other hand, in recent years creating an efficient financial market has been one of the key priorities in the community planning for achieving longterm and sustained economic growth. There is a general consensus that financial intermediaries increase and facilitate economic growth by allocating resources to various sectors of the economy, reducing the cost of financing and savings mobilization and transferring them to efficient sectors. In fact, the developed financial system will improve investment and favoring a better allocation of resources and thereby long run economic growth. Also, it seems that the effects of financial development on economic growth is asymmetric at different institutional levels and follow from a nonlinear model. Thus it seems necessary to study the relationship between governance indicators, especially government effectiveness index and economic growth as well as the effect of financial development on economic growth in different levels of government effectiveness.