Government Debt and Economic Growth in Iran: Smooth Transition Regression (STR) Approach

Document Type : Scientific paper

Authors

1 MA student, Islamic Azad University, Electronic Branch, Tehran,Iran

2 Associate Professor at Firoozkooh Branch, Islamic Azad University, Firoozkooh, Iran

Abstract

The emergence of economic crises has caused the devastating effects of government debt to be at the center of economists' attention. On the other hand, Uncertainty over the economies of developing countries has led the government borrowing from domestic sources, especially borrowing from the domestic banking system, is quite tangible to borrowing from foreign sources, that the Iranian economy has not been excluded from this principle. Accordingly, this study attempts to investigate the nonlinear impact of government debt to the domestic banking system on economic growth using a Smooth Transition Regression (STR) model. Based on the results of the model estimation, the threshold value for the ratio of government debt to the domestic banking system GDP is 26.63%. Meanwhile, government debt to the domestic banking system has a negative effect on economic growth in both regimes, although in the second regime (when the ratio of government debt to the domestic banking system to GDP is greater than 26.63%) has added to the severity of the negative impact of government debt on economic growth. Also, the findings of this research show that inflation, openness and public expenditure have had a negative and significant effect on Iran's economic growth for the period 1973-2016.

Keywords

References

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Macroeconomics Research Letter
Volume 13, Issue 25
December 2018
Pages 133-152

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History

  • Receive Date: 01 January 1970
  • Accept Date: 01 January 1970

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