The Effect of Stock Market on Economic Growth: The Case of Iran

Abstract

The main goal of this paper is to investigate the relationship between stock market development and economic growth in Iran. To this end, the paper using quarterly data from 1998Q1 to 2012Q4 and employing time series methodologies, namely Johansen’s co-integration and Granger causality testing procedures in the context of Vector Error Correction Models (VECM), examine the short and long run dynamics of the relationship. The Johansen test of co-integration suggests that variables are co-integrated and the VECM reveals existence of long running relationship. In addition, the granger causality test showed a two-way causality between stock market and growth in Iran.