Threshold Effects of External Debt on Economic Growth of Iran: Smooth Transition Regression (STR) Model

Previous studies show conflicting results about the effects of external debt on economic growth in different countries; this inconsistency in results could be due to nonlinear effects of external debt on economic growth. The identification of this nonlinear relationship can be widely used in government policies toward external debt. Thispaperinvestigates the impact of external debt on economic growth in Iran during the period 1970-2014. For this purpose,is used thesmooth transitionregression(STR) model. Results of the estimated Smooth Transition Regression (STR) model, approved the nonlinear effects of external debt on economic growth, also external debt had a negative effect on economic growth in the form of a two regime structures with a threshold level of about 18770 million dollars. Sothat increases the intensity ofthisnegativeimpact with crossingof threshold levelandentering thesecondregime.