Impact of domestic credit and real interest rate on economic growth:Cases of Iran and Malaysia

the effect of financial development and financial repression on economic growth is a challenging topic. This research examines the effect of banks facilities and their interest rates on economic growth in both Iran and Malaysia during the period 1366-1396 for Iran and 1985- 2016  for Malaysia by using the Distributed Lag Regression Model (ARDL). The statistical results indicate the positive effect of the variables of banks' facilities, foreign direct investment, and fixed capital formation on the growth rate and the negative effect of the real interest rate on the economic growth rate in Iran. But the trade balance coefficient negative in Iran and positive and insignificant in Malaysia, implying the vulnerability of the Iranian economy to foreign trade. In addition, the positive effect of FDI and the negative effect of the facility's interest rate on economic growth in Malaysia are far stronger than Iran. Therefore, monetary and interest rate policy is a more effective instrument for controlling flucyuations during the business cycle in the Malaysian economy compared to Iran.