The Short and Long Run Causality between Financial Development ‎and Economic Growth in Iranian Provinces

The relationship between economic growth and developments in the ýfinancial sector has been one of the most discussed areas in economics ýfor a long time; and the direction of causality – whether financial ýdevelopment causes economic growth or vice versa – is by no means a ýsettled issue.ý
This paper investigates the short- run and long-run Granger causality ýbetween financial development and economic growth in Iranian ýProvinces during the period 1991–2011. ý
More specifically, in the first stage, we use a Fully Modified Ordinary ýLeast Squares (FMOLS) method to estimate our long-run panel data ýmodel. In the next stage, Generalized Method of Moments (GMM) is ýused to examine Granger Causal relationship between each pair of ývariables. The results suggest the existence of bidirectional short-run ýand long-run Granger causality between financial development and ýeconomic growth