Document Type : Research Paper
Abstract
The relationship between real and financial sector have focused the attention of many previous studies. Although there is an approximate consensus among economists about the positive effect of financial development on economic growth, the causality between these two is still challenging. In addition, in most studies the finance-growth nexus has been discussed without considering the effective environmental factors. Hence, a few studies had investigated the effect on financial markets performance. By studying the effect of oil revenues on causal relationship between financial development and economic growth, the present article attempts to offer an answer to the distinct in finance-growth causality between resource-based developing countries and production-oriented developed economies. This paper considers the ratio of oil revenues as a share of total government revenues in Iran during 1352 to 1389. It tests tri-variate causality between economic growth and some indicators of financial development in the presence of inflation rate during 1352 to 1389 by using VECM model and also multilateral index of financial development which derive from principle component analysis. The findings indicate that in contrast with the results of bi-variate causality tests which indicate the adverse causality from growth to finance, the results on tri-variate causality tests in the presence of high inflation rates reject this passive effect in some cases of financial development indexes and this one-way causal relation become weaken in the case of others.
Keywords
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