The Nonlinear Relationship Between the Uncertainty of Government Economic Policies and Economic Growth of Iran with Emphasis on the Development of Financial Markets in a Novel Gas Model Framework

Document Type : Research Paper

Authors

1 Faculty of Economics and Managementو Urmia University, Urmia, Iran.

2 Faculty of Economics and Management, Urmia University, Urmia, Iran.

Abstract

The main purpose of the present study is to investigate the effect of government economic policy uncertainty on economic growth in terms of the development of financial markets during the period 1978-2018 in the framework of a nonlinear model. To estimate the uncertainty, the novel Generalized Autoregressive Score model, and to estimate the effect of government expenditures uncertainty on economic growth in terms of capital market development, the Smooth Transition Autoregressive model has been used. The results of this study show that the government spending uncertainty in the first regime (low levels of investment) has a negative impact and in the second regime (high levels of investment) has a positive effect on economic growth. In the first regime, with the development of the capital market, the negative impact of uncertainty on economic growth has been neutralized. While in the second regime, the development of the capital market has not been able to maintain the positive effect of uncertainty on economic growth and the uncertainty of government spending in terms of capital market development has a negative impact on economic growth. As a result, the country's capital market is unable to take advantage of high levels of investment to reduce government uncertainty on economic growth.

Keywords

Main Subjects

References

  1. Abdelkader, D., & Sy, A. (2016). The volatility of exchange rate between the US dollar and African emerging currencies: analyzing by GAS-GARCH-Student-t model. International Journal of Critical Accounting, 8(2), 132-143.
  2. Abel, A.B., & Eberly. J.C. (1994). A unified model of investment under uncertainty. American Economic Review, 84, 1369-1384.
  3. Adedeji, A. N., Ajayi, J. M., & Thomas Tizhe, M. (2019). Effects of public expenditure and financial development on economic growth: empirical evidence from Nigeria. Journal of Economics, Management and Trade, 22(4), 1-14. https://doi.org/10.9734/JEMT/2019/46228.
  4. Aizenman, J., & Marion, N.P. (1993). Macroeconomic uncertainty and private investment. Economics Letters, 41, 207-210.
  5. Arestis, P. González, A. R., & Dejuan, O. (2016). Investment, financial markets, and uncertainty. levy economics institute. Economia e Sociedade, 25(3). https://doi.org/10.1590/1982-3533.2016v25n3art1.
  6. Barghandan, A. Barghandan, K. Sotoudeh Nia Karani, S., & Pazand, M. (2010). Effects of human capital on economic growth in Iran. Quarterly Journal of Economical Modeling, 4(12), 39-56 (In Persian).
  7. Barro, R. J. (1991a). Economic growth in a cross section of countries. Quarterly Journal of Economics, 106(2), 407-443.
  8. Bloom, N. (2009). The impact of uncertainty shocks. Econometrica, 77 (3), 623–685.
  9. Bollerslev, T. (1986). Generalized Autoregressive Conditional Heteroscedasticity. Journal of Econometrics, 31(3), 307-327.
  10. Central Bank. (2007) Economic report and balance sheet, Chapter 18, Financial Development, Tehran (In Persian).
  11. Chen, R., & Xu, J. (2019). Forecasting volatility and correlation between oil and gold prices using a novel multivariate GAS model. Energy Economics, 78, 379-391.
  12. Creal, D., Koopman, S. J., & Lucas, A. (2013). Generalized autoregressive score models with applications. Journal of Applied Econometrics, 28(5), 777–795.
  13. Dehghani, A., & Yahyapour, A. (2018). The effect of fiscal policy on economic growth in Iran. Journal of Economics and Business Research, 9(18), 1-15 (In Persian).
  14. Ghosal, V., & Loungani, P. (2000). The differential impact of uncertainty on investment in small and large businesses. The review of Economics and Statistics, 82(2), 338-343.
  15. Greenwald, B., & Stiglitz, J. (1990). Macroeconomic models with equity and credit rationing, in Hubbard, R.G. (ed.), asymmetric information, corporate finance, and investment. Chicago: University of Chicago Press, pp. 15-42.
  16. Hatami, A. Imamverdi, Q. Zeraat, M., & Soltanololamaei, S. M. H. (2017). The impact of uncertainty of government expenditures on economic growth of Iran (Application of Fully Modified Ordinary Least Square Approach). Quarterly Journal of Ravand, 24(79), 15-40 (In Persian).
  17. Hensen, B. E. (1999). Threshold effect in non-dynamic panels: estimation, testing and inference. Journal of Econometrics, 93(2), 345-368.
  18. Hoshmand, M., & Daneshnia, M. (2011). Impact of financial development on economic growth in Iran. Financial Monetary Economics, 18(2), 45-61 (In Persian).
  19. Hurst, H. E. (1951). The long-term storage capacity of reservoir. Transactions of the American Society of Civil Engineers 116, Paper 2447, Published in 1950 as Proceedings-Separate No. 11.
  20. Jelilov, G., & Musa, M. (2016). The impact of government expenditure on economic growth in Nigeria. Sacha Journal of Policy and Strategic Studies, 5(1), 15-23.
  21. Karaman, K., & Yildirim-Karaman, S. (2019). How does financial development alter the impact of uncertainty? Journal of Banking and Finance, 102, 33-42.
  22. Karim, M., Shaqaqi Shahri, V., & Nasri, L. (2015). Assessment of the privatization in Iran pertaining to the general policies of Article 44 of Constitution (private sector increment). The Macro and Strategic Policies, 3 (11), 49-62 (In Persian).
  23. Khadem Alizadeh, A. (2013). ،he effects of capital market on economic growth in Iran (1991-2011) by using the Principal Components Analysis (PCA). Economics Research, 13(50), 87-121 (In Persian).
  24. Khodavisi, H., & Vafamand, A. (2013). Comparison of exchange rate forecasting based on nonlinear STAR models and competing models. Quarterly Journal of Economic Modeling, 7 (23), 85-103 (In Persian).
  25. Kim, W. (2019). Government spending policy uncertainty and economic activity: US time series evidence. Journal of macroeconomics, 61, 103-124.
  26. Landau, D. (1986). Government and economic growth in the less developed countries: an empirical study for (1960-1980). Economic Development and Cultural Change, 35, 35-75.
  27. Lensik, R. (2001). Financial development, uncertainty and economic growth. De Economist, 149(3), 299-312.
  28. Levine, R. (1997). Financial development and economic growth: Views and agenda. Journal of Economic Literature, 35, 688-726.
  29. Levine, R., Loayza, N., & Beck, T. (2000). Financial intermediation and growth: causality and causes. Journal of Monetary Economics, 46(1), 31-77.
  30. Levine, R., & Zervos, S. (1998). Stock markets, bank and economic growth. The American Economic Review, 88(3), 537-542.
  31. Lucas, R.E., & Prescott, E.C. (1971). Investment under uncertainty. Econometrica, 39, 659-681.
  32. Makatjane, K. D., Xaba, D. L., & Moroke, N. D. (2017). Application of Generalized Autoregressive Score Model to stock returns. International Journal of Economics and Management Engineering, 11(11), 2549- 2552.
  33. Mandelbort, B. (1972). Statistical methodology for nonperiodic cycles: from the covariance to R/S analysis. Annals of Economic and Social Measurement, 1(3), 259-290.
  34. Mehrara, M., Seyyed Gasemi, M. S., & Behzadi Sofiani, M. (2016). The effects of inflation and government spending uncertainty and their interaction on Iran's economic sectors, Journal of Financial Economics,10(34), 33-58 (in Persian).
  35. Molaei, M. A., & Dehghan, A. (2012). tThe impact of research and development expenditures on the market share in Iranian industry sector (LSTAR Approach). Quarterly Journal of Economic Growth and Development Research, 1(4), 55-74 (In Persian).
  36. Muller, N., & Yohai, V. (2008). Robust estimates for GARCH models. Journal of Statistical Planning and Inference, 138(10), 2918-290.
  37. Murray, J. (2014). Fiscal policy uncertainty and its macroeconomic consequences. MPRA (Munich Personal RePEc Archive) Paper from University Library of Munich, Germany. Paper No. 57409
  38. Rahmani, L. (2010). The effect of uncertainty on government economic policies on economic growth. Master thesis, Shahid Beheshti University, Tehran (In Persian).
  39. Schumpeter, J.A. (1939). Business cycles: a theoretical, historical, and statistical analysis of the capitalist process. New York: McGraw-Hill.
  40. Shahbazi, K., & Najarghabel, S. (2017). Nonlinear effects of currency undervaluation on economic growth in Iran: Application of Smooth Transition autoregressive (STAR) models. Quarterly Journal of Applied Economics Studies in Iran (AESI), 6(21), 123-147 (In Persian).
  41. Solo, R. M. (1956). A contribution to the theory of economic growth, The Quarterly Journal of Economics, 70(1), 65–94.
  42. Sori, A. Ebrahimi, M., & Salariyan, M. (2011). Uncertainty in government spending and economic growth. Journal of Macroeconomics, 6(11), 107-124 (In Persian).
  43. Stigiltz, J., & Weiss, A. (1983). Incentive effects of terminations: applications to the credit and labor markets. American Economic Review, 73(5), 912-927.
  44. Taghavi, M., & Mohammadi, H. (2009). The impact of investment infrastructure on Iran’s economic growth. Journal of Economic Research, 9(32), 15-42 (In Persian).
  45. Terasvirta, T., & Anderson, H. M. (1992). Characterizing nonlinearities in business cycles using smooth transition autoregressive models. Journal of Applied Econometrics, 7(1), 119-136.
  46. Troster, V., Tiwari, A. K., Shahbaz, M., & Macedo, D. N. (2019). Bitcoin returns and risk: A general GARCH and GAS analysis. Finance Research letters, 30, 187-193
Quarterly Journal of Applied Theories of Economics
Volume 7, Issue 2 - Serial Number 25
September 2020
Pages 103-128

Files

Share

How to cite

Statistics