Abstract
The aim of this study is to demonstrate the relationship between government size and economic growth in Iran within bivariate and trivariate causality framework. For this purpose, Vector Auto Regressive Model, Johansen Test and Auto Regressive Distributed Lag Model were used for analyzing the long run relationship, whereas Error Correction Model was considered for the short run. Moreover Wald Coefficient was used for bivariate and trivariate causality test. The results show that the relationship between government size and economic growth in Iran is negative. Furthermore there is a one-way causality relationship for the long run and the short run-from government size to economic growth. Inclusion of unemployment and oil revenue (separately) as the third variable causes the relationship to remain negative. However the direction of causality depends on the choice of the third variable. If unemployment rate is considered as the third variable instead, there will be no causality between the two variables in the long run. Although in the short run government size is still the cause of economic growth. However, consideration of oil revenue as the third variable results in a two-way causality relationship between the government size and the economic growth in the long run and the short run.
Highlights
Economic growth has been developing countries apprehension which is the required condition for economic development
It shows the results of testing for the long run and short run relationship and bivariate and trivariate causality
The Causality: The main purpose of this study is to demonstrate the causal pattern between economic growth and government size in bivariate and trivariate framework
Summary
Economic growth has been developing countries apprehension which is the required condition for economic development. Success or failure in achieving required economic growth can cause enhancement or falling the governments and non- developed nation's plans is evaluated based on their national income. It is a fact that no society throughout history has ever obtained a high level of economic affluence without a government. Government is necessary, though by no means sufficient, condition for prosperity. It is a fact, that where governments have monopolized the allocation of resources and other economic decisions, societies have not been successful in attaining relatively high levels of economic affluence. One of the most important issues which have been studied in different ways is the impact of government size on long run economic growth. According to the first group theory, larger government size is likely to be detrimental to efficiency and economic growth due to some inefficiencies existing in the government’s presence and can be an obstacle for development in economy, the second group believe that the government existence is not a hindrance for economic growth, and the third group know the relationship between these two like an inverted U, and believe that increasing the government size to a special limit causes increasing the economic growth but results in its decrease by going beyond this limit
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
