THE EFFECT OF FINANCIAL LIBERALIZATION ON IRAN'S ECONOMIC GROWTH
Abstract. In general, financial liberalization refers to any decision made by government of a country, in which the capital flows freely inside or outside the country, leading to increased domestic investment and economic growth. In this research, the relationship between financial liberalization and economic growth in Iran during the period of 1991-2012 was examined using vector auto-regression model (VAR). The KAOPEN financial liberalization index, inflation rate, and foreign direct investment were used as explanatory variables and economic growth was used as a dependent variable in the model of this study. The research results suggest a negative relationship between the economic growth variable and the variables of financial liberalization index (KAOPEN) and inflation. There is also a positive relationship between economic
growth and foreign direct investment.
Keywords: financial liberalization, economic growth, vector auto-regression model.
Arestis, P, Demetriades , P. Fattouh, B. & Mouratidis, k. (2002) the Impact of Financial Liberalization Policies on
Financial Development; International Journal of Finance Economic, 121.
Basakha, M.Afzali, Abarguee.V,yavari. Ka, Hosseini nasab,E.(2012) Effects of Trade and Financial Liberalization on
Financial Development (Case Study: MENA Countries), International Economic Studies Volume. 40, No. 1, Spring &
Summer 2012 pp. 57-66
Bekaert,G .Campbell R, H. Christian,L (2006). Financial Openness and the Chinese Growth Experience, Nber Working
Borts G. Kopecky,K(1972). Capital Movements and Economic Growth in Developed Countrie; Journal of International
Capital Movements and Economic Growth. Volume 18(1), Pages563-592. Chapter URL:
Chinn, M. Ito, H(2015). The Chinn-Ito Financial Openness Index, 2013 Update, http://web.pdx.edu /~ito /Chinn-
Demirguc-kunt. A ,Levine.(2001).Financial Structure and economic Growth , A cross-country Comparison of Bank,
Market , and Development. Pages 30-38 .
Ebrahimi ,M And larti, H (2012).The effects of Liberalization in Trade and Finance on Production Volatility in Iranian
Economy ;Journal of Economic Research; Volume 12, Issue 46 - Serial Number 3, Spring 2012, Page 1-26.
Estrada, Gemma. P, Donghyun. Ramayandi, A.(2015). Financial development , Financial openness , and Economic
Growth, adb economics working paper series ,No. 442 | August 2015
Falahi, F. Asgharpor, H. Motefaker Azad,M. Montazeri Shor kachali, J(2012). Effect of Inflation on Economic Growth in
Iran: Using Slow Transmission Regression Model (STR); Quarterly Journal of Economic studies and policies (economic
policies): Summer 2012, Volume 8 (18), No 1 (90); pages 47-64.
Feghhi Kashani ,M (2004).Liberalization of Capital Flows and Financial Services .The Quarterly Journal of Newest
Findings of Economics, December 2004. Number 105. Pages 4-21.
Fratzher , M. Bussiere , M (2004) ,Financial Openness and Growth: Short run gain ,Long run gain ,European central
Ghura, D, (1995), Effects of Macro Economic Policies on Income Growth, inflation, and output growth in Sub-Saharan
Africa ,Journal of Policy Modeling.17.367-395.
Gregorio, j. D, (1991),The Effect of Inflation on Economic Growth: Lessons from Latina America, IMF Working
Hauner,David; Alessandro Parti, (2008),Openness and Domestic Financial liberalization; Which comes First?,
international Monetary Fund ,Preliminary Draft, February 2008,1-58.
Hermes, N, Lensing ,R. (2007), Does Financial Liberalization Influence Saving, Investment and Economic Growth?
Evidence from 25 Emerging Market Economies,1973-1996. Centre of International Banking, Insurance and Finance ,
October ,pagee 1-73.(CIBIF). Netherlands : University of Groningen.
Hoseiny ,S. Salah- manesh ,A. Sohrabi, A(2006). The freedom of the capital account and the requirements for the
banking system; Journal of Commercial Reviews; December 2006, Page30-40. ,
Kaminsky, G,L, and Reinhart, C,m (1999). The Twin Crises: the Causes of banking and Balance- of- payments
Problems, American Economic Review 89, Pages 473-500.
Kemp, M .(1996). The Gain from International Trade and Investment; A neo-Hechscher- Ohlin Approach. American
Economic Review,56, 788-809.
Khoshnevis,M. Ahmadian,A. Mehrbani, F(2010).The Study of Relationship Financial Liberalization and Economic
Growth at the Middle East and North Africa; Quarterly Iranian Journal of Applied Economics,Volume.1-
Komeyjani,A And PorRostami.N(2008). Impact of Financial Suppression on Economic Growth (Comparison of Less
Developed and Emerging Economies; Quarterly Iranian Journal of of Economic Research; Volume 12-issue37.Pages39-60.
Levine, R., and S. Zervos (1996); Stock Market Development and Long-run Growt; World Bank , Policy Research
Working Paper No. 1582, Marchz
Mackinnon, RI.(1973). Money and Capitalian Economic Development; Brookings Institution, Washington ,DC.
Mackinnon, R and Haw P(1997). Credible Economic Liberalizations and over Borrowing, American Economic
Mojtahed,A and Ahmadian,A(2009). The Effect of Financial Liberalization on Macro Economic variables (MENA
countries). Quarterly Journal of Monetary and Banking Research. Year 1, No. 2. Winter 2009, p. 101
Mojtahed,A and Ahmadian,A(2012). Interaction between Financial Liberalization and Inflation on Economic Growth in
MENA Countries; Quarterly journal of economic studies and politics. Year 19, (No. 96) , Summer 2013, pages17- 28.
Orji, Anthony. Imelda,Onyinye, Nwachukwu ,Peter.(2015) Financial Liberalization and Output Growth in Nigeria:
Empirical Evidence from Credit Channel,, International Journal of Economics and Financial Issues Volume. 5, No. 1, 2015,
pp. 297-311 ISSN: 2146-4138,www.econjournals.com
Oyovwi,O. Dickson, Eshenake, S. J.(3013) Financial Openness and Economic Growth in Nigeria: A Vector Error
Correction Approach, An International Multidisciplinary Journal, Ethiopia Volume. 7 (4), Serial No. 31, September,
:79-92 ISSN 1994-9057 (Print) ISSN 2070—0083.
Owusu, Erasmus L. Odhiambo, Nicholas M.(2014),Financial liberalization and economic growth in Nigeria: an ARDL-
bounds testing approach,Journal of Economic Policy Reform,, ISSN: 1748-7870 (Print) 1748-7889 (Online) Journal
Patrick, H ,T .(1996). Financial Developed Countries . Economic Development and Cultural Change, 14, 174- 189.
Rincon,H(2007),Financial Globalization, Economic Growth ,World Bank Economic Review ,(430) ,January,1-31.
Seyfipour,R (2010). Empirical Study of The Effect from Financial Liberalization on the Growth of a group of
developing and developed countries
with an emphasis on Iran ; Quarterly Journal of Financial Economics;. Volume 5-issue (14).spring 2011,pages 36-52.
Show,R.(1973) Financial Deepening in Economic Development; Oxford University Press; New York
Sulaiman, L.A., Oke, M.O. Azeez, B.A (2012) .Effect of Financial Liberalization on Economic Growth in Developing
Countries: The Nigerian Experience, International Journal of Economics and Management Sciences Volume. 1, No. 12,
, pp. 16-28
Tayebi, S. Sameti, M. Torki,L (2009).The Effect of Financial Liberalization on the Economic Growth Fluctuations of
selected Developing Countries; ; Quarterly Journal of New Economy And Trade; Volume 5- issue (19).spring 2010,Pages 1-
Vafai,S(2008). A Comparative Study of Foreign Direct Investment in the Capital Market of Iran and Persian Gulf States
Countries, Master's thesis, Islamic Azad University, Central Tehran Branch.
Walter, A (2005). Time Series Econometric with Applied Approach ,Translation by Sadegh Shahdani and Saeed
Shavalpour, Second Edition, Tehran .Imam Sadiq University Publisher.