Impact of FDI and Financial Market Development on Iran Economic Growth

Foreign direct investment (FDI) is one of the main economic variables that affect positively economic growth. However, according to some empirical findings, FDI has not positively affected economic growth in some countries. Scholars have pointed out that the finding of negative effect is due to domestic qualification of host country in absorption of FDI. Financial development is an essential factor that along with FDI development impacts positively economic growth. The aim of the paper is to examine the effects of financial market and FDI on economic growth in Iran using the data between 1346 and 1387. Autoregressive Distributed Lag (ARDL) approach is employed to estimate empirical models. The results of this article show that the economy with underdeveloped financial markets is not able to benefit from FDI to accelerate its economic growth. Moreover, the findings confirm that financial market effects economic growth negatively.