Nonlinear Effects of Financial Integration and Inflation on Labor Productivity in Selected Developing Countries: The Markov Switching Approach

One of the most tangible and effective areas of productivity, which the process of transformation at it, can have a significant impact on this very important indicator, is process of financial integration. Financial integration by integrating financial economies and relying more on market system and liberalization in its various dimensions can provide the basis for improving the productivity components. On the other hand, examining the impact of inflation on changes in growth rate of labor productivity is subject, which much attention in recent decades. Undoubtedly determination these effects can be helpful in adopting productivity policies. In this study, we investigate the nonlinear effects of financial integration and inflation on labor productivity in 15 selected developing countries at 2006 to 2019 with using of Markov Switching econometric technique. The results indicate that financial integration in both regimes, has a positive effect on labor productivity, but the intensity of this index impact is not very significant. There is also a Significant negative relationship about the effects of inflation on both regimes. Regarding the control variables, the business environment in first regime, has a negative effect and in second regime, it has a positive effect on labor productivity. Regarding the Institutional Factors Index, in the first regime has a positive relationship and in second regime has a negative relationship. Therefore, the need for new reform in these two areas is essential. So, it is necessary to make sustainable and cohesive planning to improve and development of financial integration indicators and also, control inflation in these societies, until  from  this way, to provide the grounds for promotion of labor productivity.