Studying the Effect of Government Expenditure Shock on Economic Growth in Iran Economy and MENA Selected Countries through Estimation of Government expenditure Multiplier

In this paper, firstly, the impact of government expenditure on economic growth in Iran (1980-2016) and MENA countries (2000-2016) is investigated using VAR and PVAR models. Further, the government expenditure multiplier are calculated and compared comparatively using the impulse response functions of each model. At the end, the effect of each factor is investigated determining the government expenditure multiplier in separate models for Iran and selected countries of the MENA for a better analysis and a closer investigation of the subject. According to the literature, results indicate that: First, the shock of government expenditure in MENA Selected Countries and Iran, together, led to a relatively strong increase in economic growth in each. Secondly, in developing countries such as the countries of MENA region, especially in Iran, government- expenditure multipliers were smaller than one and close to zero. As the government expenditure multiplier in MENA selected countries is more than Iran in short-term, but in the long run, the government expenditure in Iran is larger than MENA selected countries. Third, trade openness, public debt, and savings rates both in MENA and in Iran reduce the government expenditure multiplier, but unemployment and financial development increase the multiplier. Public debt has the most impact on the Iranian government expenditure multiplier and trade openness, which has the most impact on MENA expenditure multiplier.