Investigation the Effects of Capital Market on Economic Growth in Iran Through Microeconomics Approach (Firm Level 1370-1390)

New generation of growth models considers the effects of financial development on economic growth. The new financial literature takes a micro approach with emphasis on the external finance. In this research we examine the empirical relationship between capital market and economic growth, encompassing 27 superior firms of Tehran Stock Exchange during 1380-1390, which may being considered as a financial investigation in Iran’s Capital Market at the firm level.This paper is organized to examine the hypothesis that the external finance increases the sales and output growth rate of firms in Tehran Exchange, and therefore the aggregate economic growth. The results obtained in this paper through generalized method of moments (GMM) analysis indicate that financing both banks and capital market respectively, has increased sales and growth rate to 65.3 and 53.8 in our sample. Furthermore the sales growth rate of 27 firms that used external finance has a positive and significant relation with net sales ratio to fixed assets which indicate the positive role of capital market on economic growth in Iran. The Policy recommendation of this research is developing the capital market through definition and introduction of new financial instruments in order to absorb liquidity for efficient firms in Iran’s Capital Market.