Operational Risk, Climate Change, and Economic Growth in Iran

Economic growth is one of the most critical goals in all countries. Economic growth can enhance public welfare, reduce poverty, and alleviate unemployment. Knowing the factors affecting economic growth is essential, but recognising the obstacles can be more critical and practical. Iran is constantly exposed to various risks due to its location in one of the world’s most significant and turbulent regions, the Middle East. On the other hand, Iran’s hot and arid geographical location has led this country to be directly influenced by climate change. The main objective of the present research is to investigate the effect of operational risk and climate change on economic growth in Iran from q1:2014 to q4:2021 using the time-varying parameter vector autoregression (TVP-VAR). The research results reveal that any operational risk improvement positively affects Iran’s economic growth. Furthermore, international sanctions have a significant impact on operational risk and, thus, a negative effect on economic growth in Iran; Therefore, it is suggested to Iranian policymakers to alleviate international tensions, especially with the influential countries in the global economic scene, to improve the operational risk, increase foreign investments, enhance the business environment, reduce the cost of business transactions and accordingly, increase the economic growth and development of the country. On the other hand, the climate change crisis has had an adverse effect on economic growth in Iran. It is thus suggested that policymakers consider climate change as a critical and urgent issue in legislation.