Financial Stress, Political Risk and Economic Growth: New Evidence of Iran

Financial stress and political risk as effective factors on the behavior of economic agents lead to uncertainty and changes in expectations and they have important role for analyzing the country's economic growth. According to the importance of this issue, in present study after construction of the financial stress and political risk index in Iran, the effects of these two variables on the country's economic growth (per capita GDP growth during the period 1396 - 1388 have been investigated using seasonal data with ARDL Bounding Test. Also we will estimate the effect of financial stress and political risk on the other economic performance including gross fixed capital formation and final consumption expenditure growth in two separate models.The results of models showed that the increase in the financial stress will has a negative impact on the economic growth, gross fixed capital formation and final consumption expenditure growth,and an increase in the political risk index which means reducing in the political risk in country, will has a positive impact on these variables. In other words, increasing financial stress in the country during the period 2009 - 2018 will lead to a decrease in per capita GDP growth, a decrease in the gross fixed capital formation and a decrease in the final consumption expenditure growth and decreasing in the political risk leads to improvement in the economic performance.