Financial Development and Economic Growth in Iran

The reasons of economic growth have been always one of the most controversial issues in economic science. One of the probable effective factors on economic growth which has been declared about one century ago is financial development. Despite of this long history, there are different opinions among economists about the cause and effect relationship between financial development and economic growth. However, most economists argue that economic growth has been strongly influenced by financial sector. At the same time, evidences of different countries are also very different in this case. In the modern economic system, financial system operates like the heart and bank networks like the vessels for the economy. The efficiency of economic system is involved in the correct function of banking system. The results revealed that in the case of Iran, there is a two-way long-run causality relationship between multilateral index of financial development and economic growth. These analyses and findings should help shed some light on the literature of finance-growth nexus in developing countries, and should be especially useful to anyone who may be interested in financial economics.