Analysis of the Threshold Effects of External Debt on Sustainable Economic Growth in Iran with an Emphasis on Regulatory Quality and Government Institutional Quality
Keywords:
Threshold model, External debt, – Sustainable economic growth, Government institutional quality, Regulatory qualityAbstract
Objective: This study aims to examine the nonlinear and threshold effects of external debt on Iran’s sustainable economic growth, emphasizing the role of regulatory quality and government institutional quality.
Methodology: This applied study adopts a descriptive–analytical approach and utilizes annual time-series data for Iran covering the period 1991–2024. Long-run relationships among variables are examined using the Johansen cointegration technique, while nonlinear dynamics are modeled through a first-order Logistic Smooth Transition Regression (1LSTR) framework. Sustainable economic growth is measured using the World Bank’s Sustainable Development Index, alongside institutional, regulatory, financial, and macroeconomic control variables.
Findings: The estimation results of the 1LSTR model reveal a statistically significant threshold effect of external debt on sustainable economic growth. Once external debt exceeds the estimated threshold level, its negative impact on sustainable growth intensifies considerably. In the nonlinear regime, external debt exhibits a negative and statistically significant coefficient. Institutional quality, regulatory quality, financial development, economic openness, and rule of law exert positive and significant effects on sustainable growth, whereas inflation and government budget deficits have negative and significant impacts. Population growth is not statistically significant in the nonlinear regime.
Conclusion: The findings indicate that the impact of external debt on sustainable economic growth in Iran is inherently nonlinear and strongly conditioned by institutional and regulatory quality, highlighting the necessity of debt management alongside institutional strengthening.
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Copyright (c) 2025 Vajihe Bayat, Majid Afsharirad, Marjan Daman keshideh, Farzaneh Hajihassani (Author)
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