The Effect of Inflation Threshold on Financial Development and Economic Growth: A Case Study of D-۸ Countries
Publish place: Iranian Economic Review Journal، Vol: 25، Issue: 3
Publish Year: 1400
نوع سند: مقاله ژورنالی
زبان: English
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شناسه ملی سند علمی:
JR_IER-25-3_006
تاریخ نمایه سازی: 21 مهر 1402
Abstract:
Although financial development facilitates economic growth, inflationary conditions can negatively affect the relationship between financial development and economic growth. This paper studies the threshold inflation rate for the effect of financial development on economic growth by using the panel smooth transition regression (PSTR) model and the data from eight Islamic developing countries of the D-۸ Group over the period ۱۹۹۰–۲۰۱۷. Results show an asymmetric relationship at different levels of inflation between financial development and economic growth. The inflation rate will be transferred at the smooth transition speed of ۰.۹۳ bypassing the threshold of ۱۱.۸۸ from the first regime to the second regime, which is a nonlinear relationship in the model. Higher inflation levels reduce the motivation of the investor and consequently reduce the investment. On the other hand, the reduction in the productivity of production factors brings about the negative effect of financial development on economic growth. Thus, countries with a higher inflation rate threshold must have access to an efficient financial system to achieve low inflation rates.
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Authors
Mohammad Hoomani Farahani
Department of Economics, Faculty of Human Sciences, Maku Branch of Islamic Azad University, West Azerbaijan, Iran
Somaye Najar Ghabel
Faculty of Economics and Management, University of Tabriz, Tabriz, Iran
Reza Mohammadpour
Faculty of Economics, University of Tehran, Tehran, Iran
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