long-term and short-term effects of financial intermediation on economic growth

Financial intermediation in iran's banking system is negatively affected at least in two ways. first, there are many similarities between financial intermediation and usurious activities in the common interpretation of interestfree banking law. this encourages the banks to participate in various commercial activities. second, the price setting policies of the central bank makes investment more attractive compared to financial intermediation. in this research, the ratio of interest margin to gross income is selected as an index of financial intermediation and its importance in increasing the shortrun and longrun economic growth is investigated using a dynamic linear regression model. annual data is used and the sample includes 2005 to 2015. using a methodology similar to leamer (1983), a large set of control variables is chosen. the main statistical hypothesis is that financial intermediation has negative effect on economic growth. the results show that the rate of rejection of this hypothesis increases as we move from shortrun to longrun regressions. in other words, the positive effect of financial intermediation on growth is a longrun phenomenon.