The Role of the Stock Market and the Banking Sector in the Iranian Economy: Evidence from Time Series Data, 1967-2009

ABSTRACT: This thesis empirically investigates the relationship between the financial development and economic growth during the period between 1967- 2009 for the Iranian economy. In the light of exogenous modelling framework, the ‘Augmented Solow’ regression model is employed whether the financial or banking system stimulates the process of economic growth. The Ordinary Least Square (OLS) technique is applied to test the determinants of financial development which may have an impact on the Iranian economic growth. Based on the empirical results estimated, explanatory power supports the view that financial sector can be a good promoter of domestic economy in both long and short run. Additionally, stock market prices (volatility) have a negative influence on the Iranian output and suggest that volatility in stock prices may reflect economic ambiguity. Banking sector indicator was also found that it is so effective in the shortrun period. Keywords: Economy growth, OLS Analysis, Stock market, Banking system, Iranian economy. ……………………………………………………………………………………………………………………………………………………………………………………………………………………