Document Type : ORIGINAL ARTICLE

Authors

• Sahar Akhound Hafizi ¹
• saeed Daei-Karimzadeh ²
• sara ghobadi ³

¹ PhD Student, Department of Economics, Isf.C., Islamic Azad University, Isfahan, Iran.

² Department of Economics, Isfahan (Khorasgan) Branch, Isfahan, Iran.

³ Associate Professor, Department of Economics, Isf.C., Islamic Azad University, Isfahan, Iran.

Abstract

This study investigates the role of labor market flexibility in moderating the impact of exchange rate regimes on economic growth in Iran over the period 1970–2024, utilizing the QARDL approach. To this end, a dummy variable for exchange rate regimes was specified, assigning a value of zero to years with a floating exchange rate regime and one to years characterized by a fixed exchange rate regime. The findings reveal that the effects of institutional and macroeconomic variables on economic growth differ across short-run and long-run horizons, also across different quantiles of the economic growth distribution. In the short-run, while the individual effects of the exchange rate regime and labor market flexibility are statistically insignificant across all quantiles, their interaction term is positive and statistically significant throughout the conditional distribution. This suggests that the individual effectiveness of labor market institutions and exchange rate arrangements does not operate in isolation in the short-run; rather, these policies exhibit a complementary and synergistic relationship. In contrast, over the long-run the exchange rate regime exerts a statistically significant negative effect, whereas labor market flexibility shows a statistically significant positive effect across all quantiles. Furthermore, the long-run interaction term remains consistently positive across all quantiles, underscoring the vital role of labor market flexibility in mitigating the adverse impacts of a fixed exchange rate regime. Consequently, harmonizing exchange rate policies with institutional labor market reforms, trade openness, and macroeconomic stability is crucial for fostering sustainable growth.

Keywords

• Economic growth
• Exchange rate regimes
• Labor market flexibility
• Quantile Autoregressive Distributed Lag

Main Subjects

• Economic Growth