:: Volume 12, Issue 1 (Winter 2017) ::
J. Mon. Ec. 2017, 12(1): 89-105 Back to browse issues page
Long-term and Short-term Effects of Financial Intermediation on Economic Growth
Alireza Sharif Moghaddasi 1, Yeganeh Mousavi Jahromi1
1- Faculty of Economics, Payam-e-Noor University
Abstract:   (272 Views)
Financial intermediation in Iran's banking system is negatively affected at least in two ways. First, there are many similarities between financial intermediation and usurious activities in the common interpretation of interest-free banking law. This encourages the banks to participate in various commercial activities. Second, the price setting policies of the central bank makes investment more attractive compared to financial intermediation. In this research, the ratio of interest margin to gross income is selected as an index of financial intermediation and its importance in increasing the short-run and long-run economic growth is investigated using a dynamic linear regression model. Annual data is used and the sample includes 2005 to 2015. Using a methodology similar to Leamer (1983), a large set of control variables is chosen. The main statistical hypothesis is that financial intermediation has negative effect on economic growth. The results show that the rate of rejection of this hypothesis increases as we move from short-run to long-run regressions. In other words, the positive effect of financial intermediation on growth is a long-run phenomenon.
Keywords: Interest Margin, Indicators of Bank Soundness, Interest-Free Banking Law, Leamer’s Methodology
Full-Text [PDF 254 kb]   (118 Downloads)    
Type of Study: Applicable | Subject: Monetary Economics
Received: 2018/08/25 | Accepted: 2018/09/4 | Published: 2019/03/11

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Volume 12, Issue 1 (Winter 2017) Back to browse issues page