Financial Integration between Iran, OPEC and the Shanghai Organization

Document Type: Original Article


1 Ph.D. Candidate, Department of Economics, Faculty of Management and Economics, Shahid Bahonar university of kerman, Kerman, Iran.

2 Assistant Prof., Department of Economics, Faculty of Management and Economics, Shahid Bahonar university of kerman, Kerman, Iran.

3 Prof., Department of Economics, Faculty of Management and Economics, Shahid Bahonar university of kerman, Kerman, Iran.

4 Assistant Prof. of Economics, Faculty of Management and Economics, Shahid Bahonar university of kerman, Kerman, Iran.



This article investigates the financial convergence between Iran, OPEC & the Shanghai Organization trade groups, of which Iran is a member.  The analysis covers the period of 2005 to 2017.In order to examine the convergence dynamics of these financial markets; we have employed the Philips and Sul (2007) methodology, which uses a nonlinear time-varying factor model. This paper provides a comprehensive picture of the financial systems within Iran and its convergence clubs by testing the convergence of their money market with domestic credit to private sector by banks (% of GDP), deposit and lending interest rate, real interest rate, and capital market with Stocks traded, total value (% of GDP). The empirical findings show that money and stock markets of OPEC and the Shanghai group do not form a homogenous convergence club. Results show that Iran has convergence with some countries in OPEC and the Shanghai group in money and stock markets, which can be explained by their similar economic indicators in both markets. Furthermore, the convergence speed between Iran and the Shanghai countries is higher than that of Iran and OPEC countries, which proves that joint trade agreements are stronger reasons for convergence than the oil factor. Iran should implement further structural reforms in order to achieve greater financial convergence with its joined groups.


Arnold, I.J., van Ewijk, S.E. (2014). A state space approach to measuring the impact of sovereign and credit risk on interest rate convergence in the euro area. J. Int. Money Finance 49 (B), 340–357.

Afonso, A., Furceri, D., Gomes, P. (2012). Sovereign credit ratings and financial markets linkages: application to European data. J. Int. Money Finance 31 (3), 606–638.

 Baele, L., Ferrando, A., Hördahl, P., Krylova, E., Monnet, C. (2004). Measuring financial integration in the euro area. ECB Occasional Paper Series No. 14. European Central Bank.

 Bartkowska, M., Riedl, A. (2012). Regional convergence clubs in Europe: identification and conditioning factors. Econ. Modell. 29 (1), 22–31.

Baumöhl, E. (2014). Risk-return convergence in CEE stock markets: structural breaks and market volatility. Finance aúver-Czech J. Econ. Finance 64 (5), 352–373.

Bernard, A.B., Durlauf, S.N. (1996). Interpreting tests of the convergence hypothesis. J. Econom. 71 (1), 161–173. Borsi, M.T., Metiu, N., 2015. The evolution of economic convergence in the European Union. Empir. Econ. 48, 657–681.

 Buch, C.M., Pierdzioch, C. (2005). The integration of imperfect financial markets: implications for business cycle volatility. J. Policy Model. 27 (7), 789–804.

Byström, H., 2005. Credit default swaps and equity prices: the iTraxx CDS index market. Working Papers No. 24. Lund University.

Caporale, G.M., Erdogan, B., Kuzin, V. (2015). Testing stock market convergence: a non-linear factor approach. Empirica 42, 481–498. De Jong, R., Sakarya, N., 2016. The econometrics of the Hodrick-Prescott filter. Rev. Econ. Stat. 98, 310–317.

Cecchetti, S. G., & Schoenholtz, K. L. (2011). (The 3rd Edition) New York, NY: McGraw-Hill Education, ISBN 978-0-07-122068-2, 673.

Charles Morris, 1998. The Law of Financial Services Groups.Oxford university Press.

 Durlauf, S.N., Quah, D.T. (1999). The new empirics of economic growth. In: Taylor, J.B., Woodford, M. (Eds.), Handbook of Macroeconomics, vol. 1A. Elsevier Science, North-Holland.  J. Bank. Finance 34, 856–870.

Luc Eyraud, Diva Singh, and Bennett Sutton (2017). Benefits of Global and Regional Financial Integration in Latin America.IMF working paper.WP/17/1.

Färe, R., Grosskopf, S., Margaritis, D. (2006). Productivity growth and convergence in the European Union. J. Product. Anal. 25 (1-2), 111–141.

 Fernández de Guevara, J., Maudos, J., Pérez, F. (2007). Integration and competition in the European financial markets. J. Int. Money Finance 26 (1), 26–45.

Fischer, C., 2012. Price convergence in the EMU? Evidence from micro data. Eur. Econ. Rev. 56 (4), 757–776.

 Fritsche, U., Kuzin, V. (2011). Analysing convergence in Europe using the non-linear single factor model. Empir. Econ. 41 (2), 343–369.

 Fung, M.K. (2009). Financial development and economic growth: convergence or divergence? J. Int. Money Finance 28 (1), 56–67.

Robert J. HOdrick Edward C. Prescott Postwar (1997-1980) U.S. Business Cycles: An Empirical Investigation Journal of Money, Credit and Banking, Vol. 29, No. 1 (Feb., 1997), pp. 1-16 Published by: Blackwell Publishing

IMF – International Monetary Fund (2014). Republic of Slovenia, January 2014. IMF Country Report no. 14/11.

Islam, N. (2003). What have we learnt from the convergence debate? J. Econ. Surv. 17 (3), 309–362. M. NiÛoi, M.M. Pochea / Economic Systems 40 (2016) 323–334 333.

Lyócsa, Š., Baumöhl, E. (2015). Similarity of emerging markets returns under changing market conditions: markets in the ASEAN-4, Latin America Middle East and BRICS. Econ. Syst. 39 (2), 253–268.

Monfort, M., Cuestas, J.C., Ordóñez, J.  (2013). Real convergence in Europe: a cluster analysis. Econ. Modell. 33, 689–694. OECD – Organisation for Economic Co-operation and Development, 2013. OECD Economic Surveys Slovenia, April 2013.

Mckinnon and Shaw (1973). Finance and Growth: A Survey of the Theoretical and Empirical Literature. Tinbergen Institute Discussion Paper TI 2004-039/2.

Opec bulletin 2017.JMMCheld in St Petersburg. 

Phillips, P.C., Sul, D. (2007). Transition modeling and econometric convergence tests. Econometrica 75 (6), 1771–1855.

Prasad, E., Rogoff, K., Wei, S.-J., Kose, M.A. (2003). The effects of financial globalization on developing countries: some empirical evidence. IMF Occasional Paper No. 220. International Monetary Fund.

Pungulescu, C. (2013). Measuring financial market integration in the European Union: EU15 vs. new member states. Emerg. Markets Rev. 17, 106–124.

Ravn, M., Uhlig, H. (2002). On adjusting the Hodrick-Prescott filter for the frequency of observations. Rev. Econ. Stat. 84, 371–376.

Rughoo, A., Sarantis, N. (2012). Integration in European retail banking: evidence from savings and lending rates to non-financial corporations. J. Int. Finan. Markets Inst. Money 22 (5), 1307–1327.

Rughoo, A., Sarantis, N. (2014). The global financial crisis and integration in European retail banking. J. Bank. Finance 40, 28–41.