Examining the Causality between the Human Development Index and Economic Growth in Iran: Using a Non- Model Approach (MS-VAR)

The relationship between human development and economic growth has always interested policy makers for various important reasons. The purpose of this study is to investigate the non-linear causal relationship between the human development and economic growth variables in Iran; however, since the time series may confront structural changes, there is always a possibility for a change of direction in this causal relationship. In this study, MSIAH(3)-VAR(3) model and time series data for GDP per capita have been used, also the new definition provided by the United Nations for Human Development Index has been implemented for HDI during 1973-2011. The results indicate that in all three regimes, there is a causal relationship directed from economic growth to human development; however only in the second regime, human development caused economic growth and in two other regimes human development indicators do not have significant effect on economic growth. In effect, when oil revenues increase and accordingly economic growth rises (in first and third regime), HDI, just as consumer goods, increases only by being purchased through government expenditure; thus, it is only in recession times that HDI, plays the role of a capital good and despite its costs and pertaining expenses, benefits the economy.