The Effect of Output Uncertainty on Economic Growth

The long run economic growth is one of the main economic requirements of countries in order to attain comprehensive development and increase the social welfare. This research aims to examine the effect of output uncertainty on economic growth for Iran during 1965-2011. Output uncertainty, gross domestic product, inflation and population are variables under study. In this paper, first, output uncertainty is computed using a generalized auto-regressive conditional heteroscedasticity (GARCH) model and then the effect of output uncertainty on economic growth is estimated though co-integration test and vector auto-regression (VAR). The findings show that output uncertainty reduces the long run economic growth in Iran. This result is in accordance with Bernanke (1983) and Pindyck (1991) studies. They concluded that increase in output uncertainty leads to decrease in both investment and long run economic growth. The findings also indicate the negative and positive effects of inflation and population growth, respectively, on the long run economic growth in Iran.