The Effect of Effective Governance and Quality of Regulations on Financial Development in the Current Economic Conditions of Iran

The present study investigates effective governance and quality of regulations on financial development in Iran's current economic conditions. For this purpose, the model is estimated based on the annual data of 1996-2018 using Smooth Transition Autoregressive (STAR). The results of estimating the linear part of the model (first regime) show that the variables of GDP, role or the rule of law, quality of regulations, and government size have a significant and positive impact on Iran's financial development at 95% confidence level. Also, the variables of devaluation of the national currency and financial crises have a negative impact on financial development in the Iranian economy. Besides, the results of the non-linear part of the model (second regime) show the existence of a positive relationship between the variables of role or the rule of law and GDP with financial development. The sign of the variables of quality of regulations, government budget deficit, government effectiveness, devaluation of the national currency, nuclear sanctions, and financial crises are negative that is expected because Iran is developing and growing. The positive sign of the lag of the dependent variable of the financial development index shows the country's attention to financial development and the use of solutions and attention to infrastructure to increase financial development over time, which needs more attention from government officials.