Investigating the Effect of Financial Openness on the Development of Iran's Capital Market

Document Type : Research Paper

Authors

Department of Economics, Faculty of Management and Economics, Shahid Bahonar University of Kerman, Kerman, Iran.

10.22103/jdc.2024.23103.1458

Abstract

Objective: One of the factors in achieving economic growth is a developed capital market. Financial openness is among the factors that influence its development; therefore, the main objective of this research is to examine the impact of financial openness on the development of Iran's capital market.
 
Method: A simultaneous equations approach and the three-stage least squares estimation method were used for the time period from 1991 to 2021.
 
Results: The results indicate that financial openness has a positive effect on the development of the capital market. According to the findings, in addition to financial openness, the real interest rate also positively affects the development of the capital market, while the credits granted to the private sector and the size of the government do not show a significant impact on the development of the capital market, and the factor of trade openness has a negative effect on the capital market development index. Additionally, the results confirm the positive effect of capital market development on financial openness.
 
Conclusion: Given the results, there is a mutually positive relationship between financial openness and capital market development; therefore, increasing the degree of financial openness, which results from factors such as international engagement, reduction of domestic risks, and transparency in the capital market, contributes to its development. However, while financial openness is considered a positive factor, it can also be a destabilizing factor due to its susceptibility to international financial connections; thus, it is essential to prioritize the removal of barriers and the establishment of legal and institutional infrastructure before financial liberalization.

Keywords

Main Subjects

References

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  • Receive Date: 16 March 2024
  • Revise Date: 07 May 2024
  • Accept Date: 08 May 2024

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