Horizontal and Vertical Diversification Policies of Export and their Effect on Economic Growth: Markov Switching Approach

In this study, the effect of horizontal and vertical diversification policies on economic growth in Iran is investigated. The approach applied is Markov Switching regimes, for annual data series 1979-2015. The growth rates of horizontal and vertical diversification, consume expenditure, and investment as well as inflation rate are the variables which are used in this study. The results show that inflation rate, consume expenditure and vertical diversification growth have positive and significant effect, in both 0 and1 regimes, on economic growth. Furthermore, the horizontal diversification and investment growth also have positive effect on economic growth but only in 0 regime. Additionally, the predicted economic growth rate under three proposed scenarios, for 2016 and 2017 years, show that we can reach 8 percentage as medium growth rate in the sixth development program with emphasizing on vacant capacity, especially horizontal and vertical diversification policies