Volume 19, Issue 1 (3-2024)
J. Mon. Ec. 2024, 19(1): 43-71 |
Back to browse issues page
Download citation:
BibTeX | RIS | EndNote | Medlars | ProCite | Reference Manager | RefWorks
Send citation to:
BibTeX | RIS | EndNote | Medlars | ProCite | Reference Manager | RefWorks
Send citation to:
salatin P, khodaverdi samani M, Yadollahi M. The effect of real interest rate on the convergence speed of the economic performance of Iran's provinces. J. Mon. Ec. 2024; 19 (1) : 3
URL: http://jme.mbri.ac.ir/article-1-676-en.html
URL: http://jme.mbri.ac.ir/article-1-676-en.html
1- Department of Economics, Fi.c., Islamic Azad University, Firoozkooh, Iran
2- Ph.D. of Economics, Department of Economics and Accounting, Faculty of Economics, Lorestan University, Lorestan, Iran
3- Department of Economics, ST.C., Islamic Azad University, Tehran, Iran
2- Ph.D. of Economics, Department of Economics and Accounting, Faculty of Economics, Lorestan University, Lorestan, Iran
3- Department of Economics, ST.C., Islamic Azad University, Tehran, Iran
Abstract: (959 Views)
Interest rates are a key and important economic variable in policymaking, creating stability and economic growth. In this regard, the main goal of this study is to examine the convergence of economic performance of provinces and to examine the impact of real interest rates on the speed of convergence of economic performance of provinces.
This study uses the spatial econometric method. Also, in order to examine the impact of the real interest rate on the speed of convergence of the provinces' economic performance, the conditional beta convergence model was used. The results showed that there is convergence of economic performance in the provinces in the period 2011 – 2022 and the real interest rate had a significant but very small effect on the convergence of economic performance in the provinces. Other results showed that the Internet penetration rate of the provinces as an ICT indicator and the real capital stock of the provinces have a positive and significant effect on the convergence of economic performance. The absolute convergence rate is 0.0386 and in the conditional model it is 0.0417, which shows that in the conditional case the convergence rate of the provinces is higher. Also, in the absolute convergence model, 3.8 percent per year and in the conditional convergence model, about 4.1 percent per year of the difference between the current economic growth rate of the provinces and the long-term equilibrium economic growth of the provinces is eliminated. On the other hand, with the increase in inflation in recent years, the real interest rate has decreased, and this has caused savings to leave banks and go to other markets. Therefore, the real interest rate has had a very small impact on the economic performance of the provinces. In this regard, it is necessary to use anti-inflationary policies, including reducing the volume of liquidity, fiscal discipline of governments, and increasing production.
This study uses the spatial econometric method. Also, in order to examine the impact of the real interest rate on the speed of convergence of the provinces' economic performance, the conditional beta convergence model was used. The results showed that there is convergence of economic performance in the provinces in the period 2011 – 2022 and the real interest rate had a significant but very small effect on the convergence of economic performance in the provinces. Other results showed that the Internet penetration rate of the provinces as an ICT indicator and the real capital stock of the provinces have a positive and significant effect on the convergence of economic performance. The absolute convergence rate is 0.0386 and in the conditional model it is 0.0417, which shows that in the conditional case the convergence rate of the provinces is higher. Also, in the absolute convergence model, 3.8 percent per year and in the conditional convergence model, about 4.1 percent per year of the difference between the current economic growth rate of the provinces and the long-term equilibrium economic growth of the provinces is eliminated. On the other hand, with the increase in inflation in recent years, the real interest rate has decreased, and this has caused savings to leave banks and go to other markets. Therefore, the real interest rate has had a very small impact on the economic performance of the provinces. In this regard, it is necessary to use anti-inflationary policies, including reducing the volume of liquidity, fiscal discipline of governments, and increasing production.
Article number: 3
Keywords: Economic Convergence, Real Interest Rate, Human Capital, Information and Communication Technology, Spatial Econometrics
Type of Study: Original Research - Case Study |
Subject:
Monetary Economics
Received: 2 Feb 2025 | Accepted: 20 Jul 2025 | Published: 28 Sep 2025
Received: 2 Feb 2025 | Accepted: 20 Jul 2025 | Published: 28 Sep 2025
References
1. Abounoori, E., & Kashefi, A. (2018). Economic Growth of Iranian Provinces. Macroeconomics Research Letter, 13(25), 154-180. [In Persian]
2. Absalyamova, G., Absalyamov, B., Mukhametgalieva, F., & Khusnullova, R. (2015). Management of the Sustainable Development of Human Capital in the Terms of Macroeconomic Instability. Journal of Procedia Economics and Finance, 24(1), 13-17.
3. Ahmadi, M.T., Falahi, M.A., & Khosravi, S. (2012). Hsiao’s Causality Test Between Interest Rate and Inflation Rate for MENA Countries Group. Quarterly Journal of Economic Growth and Development Research. 1 (3), 203-233. [In Persian]
4. Al-Ajlouni, S. A., & Sanajle, B. M. (2023). The Effect of Real Interest Rate on Real Economic Growth in Jordan. Jordan Journal of Economic Sciences,.10(2), 184–192.
5. Albiman, M. M., & Sulong, Z. (2016). The role of ICT use to the economic growth in Sub Saharan African region (SSA). Journal of science and technology policy management. 7. (3), 306-329.
6. Appiah-Otoo, I., & Song, N. (2021). The impact of ICT on economic growth Comparing rich and poor countries. Telecommunications Policy, 45(2), 102082.
7. Ande, C., & Caporale, G. M. (2024). Functional shocks to infation expectations and real interest rates and their macroeconomic effects. Review of World Economics.
8. Balash, V., Balash O., Faizliev, A. & Chistopolskaya, E. (2020). Economic Growth Patterns: Spatial Econometric Analysis for Russian Regions. Information, 11(6), 289.
9. Balogun, W., Dahalan, J., & Hassan, S. (2016). Long run impacts of interest rate liberalization on stock market development. Procedia, Social and Behavioral Sciences. 219, 126-133.
10. Beck, T., Colciago, A., & Pfajfar, D. (2014). The role of financial intermediaries in monetary policy transmission. Journal of Economic Dynamics and Control. 43(C), 1-11.
11. Binning, A. & Bjornland, H. & Maih, J. (2019). Is monetary policy always effective? Incomplete interest rate pass–through in a DSGE model. Working paper. Norges Bank Research
12. Costantini, V. & Martini, C. (2010). A Modified Environmental Kuznets Curve for Sustainable Development Assessment Using Panel Data. International Journal of Global Environmental. 10(1/2), 84- 122.
13. D’Adda, C., & Scorcu, A. E. (1997). Real interest rate and growth: An empirical note [Working paper]. AMS Acta.
14. Darby, M. R. (1975). The Financial and Tax Effect of Monetary Policy on Interest Rates. Economic Inquiry, 14, 260-274
15. Delangizan, S., Goli, Y & Goli, Y. (2017). Measuring Economic Growth Inequality and Examining Growth Convergence of Iran's Provinces (Spatial Econometric Approach). Quarterly Journal of Economic Growth and Development Research, 7(28), 83-98. [In Persian]
16. Diamond, D. W. (1984). Financial Intermediation and Delegated Monitoring. The Review of Economic Studies, Review of Economic Studies Ltd.51(3), 393-414.
17. Edquist, H., & Henrekson, M. (2017). How important are ICT and R&D to economic growth? Structural Change and Economic Dynamics 42, 1–12.
18. El-Wassal, K. A. (2005). Understanding the growth in emerging stock markets. Journal of Emerging Market Finance. 4(3), 227-261
19. Farahani, M., Marzban, H., Dehghan, Z., & Akbarian, Z. (2018). The theory of Measuring Effects of Interest rate shock on the Macro factors in Iran: A Factor-Augmented Vector Autoregressive, Approach. Applied Economics Studies Iran (AESI). 7 (25), 29-54. [In Persian]
20. Fattahi, Sh., & Attar, Kh. (2015). Examination of Income Convergence among Iranian Provinces: Panel Data Approach. journal of Economic and Regional Development. 22(9),188-210. [In Persian]
21. Fry, M.J. (1988). Money, Interest, and Banking in Economic Development. The Johns Hopkins University Press, Baltimore.
22. Holmes, M. J., Iregui, A. M., & Otero, J. (2019). Interest rate convergence across maturities: Evidence from bank data in an emerging market economy. The North American Journal of Economics and Finance. 49(C), 57-70.
23. Hembram, S., & Haldar, S. K. (2021). Revisiting global income convergence: 1990-2018 A disaggregated analysis. Economics Bulletin.
24. Hodrob, R., Maitah, M., & Smutka, L. )2016(. The Effect of Information and Communication Technology on Economic Growth: Arab World Case. International Journal of Economics and Financial, Issues, 6(2), 765-775.
25. Hodrob, R. & Awad, S. A. )2016(. Econometric analysis of the impact of ICT on economic growth for Qatar in globalization context. 16th International Scientific Conference Globalization and Its Socio-Economic Consequences University of Zilina.
26. Imran, M. B., Bano, S., Azeem, M., Yasir, M., & Abid, A. (2012). Relationship between human capital and economic growth: Use of cointegration approach. Journal of Agriculture & Social Sciences. 8(4), 135-138.
27. Jorgenson, D.W. (1963). Capital Theory and Investment Behavior. American Economic Review. 53, 247-59
28. Kazerooni, A. R., Kiyani, P., & Mozaffari, Z. (2016). Determination of Interest Rate in Iran by using Fuzzy logic Method. Journal Financial Knowledge of Securities Analysis. 9(30), 77 – 93. [In Persian]
29. Keshavarzian Peyvasti, A., & Azimi Chanzagh, A. (2008). The Assessment of the Effect of Liberalization of Interest Rate on Investment and Iran’s Economic Growth (By Using Simultaneous Equation System). Economics Research, 8(31), 29-57. [In Persian]
30. Khajeh Mohammadlou, A., & Khodavaisi, H. (2017). The relationship between the exchange rate, inflation and interest rates under Fisher's theories approach for Iran. Journal of Applied Economics Studies Iran (AESI). 6, (21), 199-221. [In Persian]
31. Khosravi, A., Marzban, H., Ghaderi, J., & Rostamzadeh, P. (2021). Incomplete Interest Rate Pass-Through and Monetary Policy in Iran. Monetary & Banking Researches. 14 (47), 107-154. [In Persian]
32. Kumar, A. & Kaushal, S. K. (2023). Real Interest Rates-Inflation Relation in South Asian Countries. Asian And Pacific Economic Review, 16(1).
33. Kumar, R. R., Stauvermann, A.& Samitas, A. (2016). The Effects of ICT on Output Per Worker: A Study of the Chinese Economy. Telecommunications Policy, 40 (2-3), 102-115.
34. Lamers, M., Present, T., & Vander Vennet, R. (2022). European bank profitability: the Great Convergence? Finance Research Letters. 49, 103088.
35. Lee, K., Pesaran, M. H., & Smith, R. (1997). Growth and convergence in a multi-Country empirical stochastic Solow model. Journal of Applied Econometrics, 12(4), 357- 392
36. Lotfalipour, M R., & Karimi Alavijeh, N., (2019). Investigating the Relationship Between Interest Rate and the Exchange Rate in the Economy of Iran Using Ultra-Innovative Algorithms. Monetary & Financial Economics. 26 (18). [In Persian]
37. López-Penabad, M. C., Iglesias-Casal, A., & Neto, J. F. S. (2022). Effects of a negative interest rate policy in bank profitability and risk taking: Evidence from European banks. Research in International Business and Finance, 60, 101597.
38. Mahmoudzadeh, M., & Elmi, A. (2013). Inequality and Economic Growth in Iran's Provinces. Economic Research and Policy. 20 (64), 131-148. [In Persian]
39. Mankiw, N. G. (2006). Macroeconomics. New York: Worth Publishers.
40. Mankiw, N. G., & Taylor, M. P. (2006). Economics. London: Thomson Learning.
41. Mashamba, T., Magweva, R., & Gumbo, L. C. (2014). Analysing the relationship between Banks’ Deposit Interest Rate and Deposit Mobilisation: Empirical evidence from Zimbabwean Commercial Banks (1980-2006). Journal of Economics and Finance, 1(6), 64-75.
42. Matsumoto, M. (2008). Redistribution and regional development under tax competition, Journal of Urban Economics. 64(2), 480-487
43. McKinnon, R. I. (1973). Money and Capital in Economic Development. The Brookings Institution, Washington DC.
44. McCallum, B. T. (1989). “Monetary Economics: Theory and Policy”. Prentice Hall Business Publishing.
45. Mehrara, M., Musaei, M., & Mohammadian, A. H. (2011). Nonlinear Relationship Between Private Investment and Real Interest Rates: Utilizing Dynamic Threshold Panel Model: (The Case of Some Developing Countries). Ravand: Quarterly Journal of Economic Research. 19(58), 33-65. [In Persian]
46. Mishkin, F. S. (1995). Symposium on the monetary transmission mechanism. journal of economic perspectives, 9(4), 3-10.
47. Montiel, P. J. & Servén, L. (2008). Real exchange rates, saving and growth: Is there a link? World Bank Policy research working paper. (4636).
48. Mundell, R. A. (1963). Inflation and Real Interest. Journal of Political Economy. 71(3), 280-283.
49. Niebel, T., (2014). ICT and Economic Growth-Comparing Developing, Emerging and Developed Countries. 33rd IARIW General Conference, Rotterdam, The Netherlands, 24-30.
50. Nsonwu, M. C., & David, P. E. (2021). Interest rates and investment behaviour in Nigeria: An empirical evidence. IOSR Journal of Economics and Finance. 12(6), 68–75.
51. Odhiambo, N. M. (2009). Interest Rate Liberalization and Economic Growth in Zambia: A Dynamic Linkage. African Development Review, 21, 541-557.
52. Ojeaga, P., Ojeaga, D., & Odejimi, D. O. (2013). The impact of interest rate on bank deposits evidence from the Nigerian banking sector. MPRA Paper No. 53238, Monich Personal RePEc.
53. Onwumere, J., Okore, A., & Imo, G. (2012). The Impact of Interest Rate Liberalization on Saving and Investment: Evidence from Nigeria. Research Journal of Finance and Accounting, 3(10), 130-136.
54. Pahlavani, M.; Kiqbadi, M., & Hosseinzadeh, R. (2021). Spillover Impacts of Financial Development on Regional Economic Growth: A Spatial Econometric Approach. Journal of Development and Capital, 6(1), 19-32. [In Persian]
55. Papadamou, S., Sidiropoulos, M., & Spyromitros, E. (2017). Interest rate dynamic effect on stock returns and central bank transparency: Evidence from emerging markets. Research in International Business and Finance, 39, 951-962.
56. Purohit, B.C. (2008). Health and Human Development at Sub-state Level in India, the Journal of Socio-Economics, 37, 2248-2260.
57. Rahimi, S., Salatin, P., Soufi, M., & Mahmodzadeah, M. (2023). Banking Industry and Economic Convergence: An Inter-provincial Analysis. Journal of Studies in Banking Management and Islamic Banking. 8(21), 83-117. magiran.com/p2610099. [In Persian]
58. Rajae, Y., Pourali, M., & Dalmanpour, M. (2020). The effects of macroeconomic and institutional variables on the economic growth of selected countries In development. Quarterly Iranian journal of Applied Economics, 10(32)79-96. [In Persian]
59. Rains, G., Stewart, F., & Ramirez. A. (2000). Economic Growth and Human Development. World Development, 28(2), 197-219.
60. Sadeghi, A., & Tayebi, S. K. (2018). Effects of international sanctions and other determinants on Iran’s inflation rate (1981-2014). Iranian Journal of Economic Research. 23(74), 33-57. [In Persian]
61. Salahuddin, M., Alam K., (2016). Information and Communication Technology, electricity consumption and economic growth in OECD countries: A panel data analysis. Electrical Power and Energy Systems. 76.
62. Sameti, M., Dallaly, R., Khoshakhlagh, R., & Shiranifakhr, Z. (2009). Investigating the Causal Relationship between Macroeconomics Variables for Reducing the Rate of Interest in Iran with Bayesian Causal Map (BCM) Approach. Economic Research Quarterly. 44(1), 63-108. [In Persian]
63. Savulescu, C. (2015). Dynamics of ICT Development in the EU. Procedia Economics and Finance 23, 513-520.
64. Shahiki Tash, M.N., Yaghfoori,H., & Darvishi, B. (2015). Review the Intensity of Spatial and Regional Imbalance of Welfare (Comparative Study of Welfare in Iran Provinces based on Harvey and Smith Approaches. Journal of Zonal Planing. 5(17), 15-30. [In Persian]
65. Shankar, R., & Shah, A. (2003). Bridging the economic divide within countries: a scorecard on the performance of regional policies in reducing regional income disparities, World Development, 31(8), 1421-1441
66. Shaw, E. S. (1973). Financial Deepening in Economic Development. Oxford University Press, New York.
67. Solarin, S. A., Hammoudeh, S. M., & Shahbaz, M. (2018). Influence of Economic Factors on Disaggregated Islamic Banking Deposits: Evidence with Structural Breaks in Malaysia. Journal of International Financial Markets, Institutions and Money. 55, 13-28
68. Solow, R.M. (1956). A contribution to the theory of economic growth. Quarterly journal of economics, (70), 65-94.
69. Suri, T., Boozer, M. A., Ranis, G., & Stewart, F. (2011). Paths to Success: The Relationship between Human Development and Economic Growth. World Development, 39(4), 506-522.
70. Snowden, B. (2004). The New Guide to Macroeconomics, translated by Mansour Khalili-Iraqi and Ali Souri, Tehran: Brothers Publications.
71. Swan, T.W. (1956). Economic growth and capital accumulation. Economic Record, 32, 334-361.
72. Tanzi, V. (1980). Inflationary Expectation, Economic Activity, Taxes, and Interest rates. American Economic Review. 70(1), 12-21
73. Tian, X., Zhang, X., Zhou, Y. & Yu, X. (2016), Regional Income Inequality in China Revisited: A Perspective from Club Convergence. Economic Modelling, 56(4): 50-58.
74. Timakova, M.V. (2011). Conditional Convergence and the Solow Model: An Empirical study, Rotterdam School of Economics, Department of Economics.
75. Tobin, J. (1965). Money and Economic Growth. Econometrica, 33: 671-684.
76. Twesiime M., Tushabe, Ch., Ninsiima, A., Tayebwa, J., & Val Hyginus, U. (2024). Interest Rate and Loan Default in Financial Institutions. International Journal of Humanities, Management and Social Science. 7(1), 1-10.
77. Vafaei, E., Mohammadzadeh, P., Falahi, F., & Asgharpour, H. (2017). The Convergence of Social Welfare in the Iranian Provinces Using Spatial STAR Nonlinear Technique. Quarterly journal of Applied Theories of Economics. 2(4).79-102. [In Persian]
78. Valian, H., Abdoli, M. R., & Kabousi, M. (2013). Investigating the relationship between interest rate and exchange rate based on the international Fisher effect theory in Iran's economy. Economic Sciences Quarterly. 7(22), 91 – 114. [In Persian]
79. Vardar, G., Aksoy, G., & Emre, C. (2008). Effects of Interest and Exchange Rate on Volatility and Return of Sector Price Indices at Istanbul Stock Exchange. European Journal of Economics. Finance and Administrative Sciences. 11, 126-135.
80. Vu, K. M. (2013). Information and Communication Technology (ICT) and Singapore’s Economic Growth. Information Economics and Policy, 25 (4), 284-300.
81. Wang, T. (2023). The Impact Caused by the U.S. Increasing Real Interest Rate on Volatility Index. 2nd International Conference on Financial Technology and Business Analysis
| Rights and permissions | |
 |
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License. |
