Unidirectional Causality Financial Development To Economic Growth in the Context of Structural Break : The Granger Markov Switching causality approach

Numerous studies have been conducted on the effects of financial development on the economies of countries. But so , The present study, considering the problem of inhomogeneity using the Granger Markov Switching causality approach, investigates the nonlinear causal relationship between the size and financial depth of the financial sector and economic growth in Iran during the period 1352-1399. Value-added variables of the financial sector as a percentage of GDP as a variable of the size of the financial sector and the ratio of loans granted by the banking system to government and non-government to GDP as an indicator of independent financial depth Findings of this study show that in regime one (during 1362-1399), there is a two-way causal relationship between economic growth and financial size. Whereas in the zero regime, there was a one-way causal relationship from economic growth to financial one. Also, the findings of the study in examining the relationship between economic growth and financial development index, show that in the zero regime (during the years 1387-1387) there is a one-way causal relationship from financial depth to economic growth. While in the first regime no causal relationship was found between the two variables