The Effect of Macroeconomic Instability on Economic Growth in Iran

Abstract

Effect of macroeconomic instability on the economic growth through the use of time series data and macroeconomic instability indicator in the years from 1974 to 2008 is the main objective of this study. For this purpose, a regression equation has been used based on neoclassical endogenous growth model. The results, within the framework of collective method and vector error correction model, show that economic growth in Iran has a long-term relationship with the macroeconomic instability. In other words, changes in macroeconomic instability indicators will be associated with the increase (decrease) of economic growth in the long run. Also, the obtained results show that although population growth rate is effective on the long-term economic growth, it is not influenced by the consequences of this effect. In fact, this variable is weak in comparison with other exogenous variables in the short run.