Investigating the Impact of Operational Risk on Economic Growth in Iran

Economic growth is one of the headmost aims of developing and developed countries. Increasing economic growth can increase public welfare, reduce poverty and reduce unemployment. Recognizing the factors affecting economic growth is essential and undeniable, but distinguishing the obstacles to economic growth can be far headmost and effective. Risks are among the most influential and vital factors affecting economic growth. Economic and non-economic risks are consequential obstacles to economic growth. Iran is constantly exposed to various risks due to its geopolitical situation in one of the turbulent regions of the world, the Middle East. The main aim of this paper is to investigate the impact of operational risk on economic growth in Iran during 2014Q1 – 2021Q4 using the time-varying parameter vector auto-regressions (TVP-VAR). This research uses operational risk for the first time, with four main sub-indices: i.e., labor market risk, trade and investment risk, logistics risk, and security-crime risk. The results of this research show that the improvement in operational risk and its sub-indices has a positive effect on economic growth in Iran. Furthermore, international sanctions have an immense impact on operational risk and, consequently, have a negative impact on economic growth. Nevertheless, policymakers are suggested to reduce Iran’s international tensions, concretely, the countries that have an extensive impact on the world’s economy to improve the operational risk, increase foreign investments, improve the business environment, reduce the cost of trade and business transactions, and, as a result, provide the country’s economic growth and development.