Effects of Trade and Financial Liberalization on the Performance of Economic Sectors

In this Paper we have attempted to examine the impact of trade and financial liberalization on both real and financial sectors of Iranian Economy. We have used a Vector Auto Regression (VAR) model to test our hypothesis. The result shows that trade liberalization play an important role in economic growth and financial development. However, financial liberalization have had negligible impact, indicating that if financial liberalization is to have its significant effects on the economy, the government has to provide pre-requisites and pre-conditions needed. Until then the country has to follow a prudential financial policy.