Decomposition of Growth Quality in the Islamic Republic of Iran during the Period 1971-2013

Abstract Growth quality index (QGI) is affected by two sets of structural and social composite indicators. Structural indicator contributes to achieve the main target of sound, sustainable, and competitive output growth. By the way, the sound output growth should enhance social public services and living standard. Although QGIs are computed based on different scenarios, the trend of the QGIs and coefficient of variation of the QGIs indicate the robustness of the results. The Correlation among QGI and social sub-components highlights a positive relationship between QGI and school enrollment, per capita income and public spending on education and health. The result of cointegration model indicates that higher government size and devaluation of local currency have evidently exacerbated QGI. Meanwhile, openness and inflation underscore the positive long-run impact over QGI. Furthermore, vector error correction equation outlines that about 84 percent of a short-term shock to the cointegrating vector will be absorbed in the first period. In this context, the impulse response of the QGI to the exchange rate and government size shocks are diminishingly and negatively permanent while the response of the QGI to the shocks of openness is significantly and positively permanent.