Investigating the Relation between Financial Development and Economic Growth Using ARDL Approach Case study: Iran

Considering the importance of financial markets and the role of financial development in the economic growth, in this paper we investigated the importance of financial development in the economic growth of Iran in 1975-2008. To estimate the effects of financial development on the economic growth, we used ARDL approach and Bound Test (Pesaran et al. (2001)) long term relation. We also used the credits paid to non-governmental sector as the proxy of financial development. The results show that there is a long term relation between domestic gross production growth without oil and financial development and other variables such as oil incomes, capitalization and labor. The results of estimation show that there is a positive and significant relation between financial development and economic growth both in short and long terms.