TRADE AND FINANCIAL LIBERALIZATION AND THEIR EFFECT ON ECONOMIC GROWTH OF IRAN

In this paper, self explanatory dynamic approach with distribution lags, and for short run relation between variables, vector error correction model is used. The finding of this paper shows that, in short run, there is a direct significant relation between economic growths in one period with that of previous one. In addition there is a direct significant relation between economic growth and increase in Gross Domestic Investment in construction and machinery sectors. A comparison between long and short run effect of Gross Domestic Investment on economic growth of Iran shows that in the short run, an increase in formation of Gross Domestic Investment accelerates economic growth more than the long run. In the short run, there is a direct significant relation between FDI in one period with FDI of the pervious period. In other word, in the short run, increase in the FDI shall accelerate the economic growth of next period. Finally, imposed war on Iran has shown its negative effect on economic growth in both long as well as short run.