Effects of Financial Liberalization and Development on Iran's Economic Growth

Today, economic liberalizations and national and global markets have been quite significant in sustainibility of economic growth. Indeed, financial development relies on an efficient bank system, arising from competitiveness and financial liberalization. This study evaluates effects of financial development, through measuring various indices, on Iran’s economic growth. It also raises questions: what is the effect of financial liberalization on the country growth if the country’s financial system experiences a specific scenario of financial liberalization, like interest rate liberalization and its convergence toward price changes? How does privatization in banking system affect the country’s economic growth? To approach these ends, we use econometric methods (such as ARDL and ECM) and data of Iran’s banking system as well as other macroeconomic variables over 1984-2005. This allows us to explore empirically both short and long-run effects of financial development on the countryُs economic growth. The expected results confirm the significant and positive effects of interest rate convergence and privatization of the banking system on the country’s economic growth, particularly in the long-run.